A 90-day trade truce and major tariff cuts between the US and China lifted market sentiment on Monday, pushing the US Dollar and risk assets higher. Optimism was further fueled by talk of more US trade deals and President Trump's move to slash prescription drug prices by 59%. Hawkish central bank expectations also added to the upbeat mood.
However, caution crept in as Washington and Beijing warned of reinstating tariffs if talks fail. Concerns over future US deals, Middle East tensions, and anticipation of key US inflation data (CPI) also weighed on risk appetite.
Meanwhile, Japanese and UK economic updates briefly supported moves against the US Dollar.
Against this backdrop, the US Dollar Index (DXY) retreats from a month’s high while paring the biggest daily jump in six months. This allowed Gold and other currencies to consolidate the previous losses, but Crude Oil seesaws at a fortnight high, and cryptocurrencies brace for a third day of pullback after hitting a multi-month high. Further, equities are also subdued in the Asia-Pacific region, even as Wall Street marked stellar gains, whereas bond yields also struggled to build on recent highs.
GBPUSD bounces back from a monthly low, trimming its biggest daily loss in five weeks. The recovery is driven by a weaker US Dollar, market consolidation, and upbeat early UK data, including a jump in retail sales and card spending.
Mixed UK jobs data had limited impact, while rising hawkish central bank expectations also supported the Pound ahead of key speeches from BoE Governor Bailey and the US inflation release.
Like the Pound, the Euro and Yen gained as the US Dollar pulled back. EURUSD rebounded from its lowest since April 10, even as ECB officials downplayed the US-China deal amid ongoing EU-US tensions. USDJPY slipped from a five-week high after Japanese diplomats signaled a willingness to discuss currency moves with the US, hinting at progress in trade talks. Meanwhile, BoJ’s Deputy Governor Uchida maintained a hawkish stance despite market uncertainties, while the BoJ's latest meeting summary showed a cautious policy outlook.
After missing out on Monday's risk rally, the Australian, New Zealand, and Canadian Dollars rebounded early Tuesday, helped by late optimism over the US-China deal and a softer US Dollar. AUDUSD recovered from a two-week low despite mixed Aussie data on consumer confidence and business sentiment. NZDUSD followed suit, recovering losses without fresh local support. Meanwhile, USDCAD dipped from a five-week high, snapping a four-day win streak, even as oil prices—key to Canada’s economy—struggled to push higher.
Gold edges higher after its biggest drop in two weeks, supported by a softer US Dollar, China demand hopes post US-China deal, and rising tensions in India and the Middle East. Caution ahead of US inflation data also underpins the safe-haven metal. Meanwhile, WTI crude oil stalls after a three-day rally, as traders await US inventory data and CPI figures.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) remain under pressure for a third straight day, even after hitting multi-month highs on Saturday. This comes despite a softer US Dollar, strong inflows, staking optimism, and a supportive tone from the US SEC. Heavy liquidations and a reassessment of earlier bullish catalysts appear to be weighing on crypto prices ahead of key US data.
After riding the US-China deal optimism, markets now look for signs of further US trade agreements to maintain risk appetite. A lack of progress could trigger a pullback from Monday’s gains. Meanwhile, strong US CPI data could revive the US Dollar, supported by rising hawkish central bank sentiment.
If so, EURUSD may struggle to hold gains amid EU-US trade tensions, even with upbeat German and EU ZEW sentiment data. GBPUSD could extend its rebound if BoE Governor Bailey sounds optimistic, especially after recent trade developments.
Elsewhere, Gold and Oil may remain range-bound, while equities could drift as traders await fresh catalysts.
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