The Dollar jumped on Monday after the US and China reached a temporary agreement to cut reciprocal tariffs, alleviating concerns about a devastating trade war between the world’s two largest economies.
The US will lower the additional tariffs on Chinese goods imposed in April from 145% to 30%, while Chinese tariffs on US imports will decrease from 125% to 10%. The deal exceeded investor expectations and came after weekend negotiations.
The greenback’s rise hit safe-haven currencies hard, gaining 1.9% to 148.16 Yen and 1.5% to 0.8443 Swiss Francs, Reuters reports.
“(US President Donald) Trump has toned down his tariffs faster than anyone thought he could. It seems that tariffs on China will fall to manageable levels, albeit temporarily,” stated Arne Petimezas, director of research at AFS Group in Amsterdam.
The Dollar climbed 1.1% against a basket of currencies, reaching its highest level in over a month.
However, it remains 2.3% lower since Trump’s 2nd April announcement of sweeping tariffs, which had unsettled confidence in US assets due to his often chaotic policy rollout.
“Now the conditions are falling into place for a deeper adjustment and a bigger recovery of the Dollar to catch up with US equities and bond yields,” stated Kenneth Broux, senior strategist at Societe Generale in London.
In addition, the Euro dropped 1.3% against the Dollar to $1.111, heading for its biggest one-day loss of the year. Meanwhile, Sterling fell 1% to $1.318.
“We can see a bit more Euro-Dollar weakness as we’re breaking some key technical levels,” Broux added.
This week, attention will be on the US Consumer Price Index (CPI) data on Tuesday and April retail sales on Thursday, as markets look for signs of how the trade dispute has affected the economy and expectations for further rate cuts by the US Federal Reserve.
On Monday, traders adjusted their bets, expecting fewer rate cuts from both the Fed and the European Central Bank following improved economic prospects after the US-China trade deal.
In addition, the New Zealand and Australian Dollars, often viewed as indicators of risk appetite, rose 0.5% to $0.58790 and 0.3% to $0.639, respectively. Meanwhile, China’s Yuan reached a six-month high at 7.2001 Yuan per Dollar.