The US dollar saw a strong surge on Monday, rising by 1.6%, supported by a sharp increase in Treasury yields, with the 10-year yield surpassing the 4.45% level. This move came after the announcement of a temporary agreement between the United States and China to suspend mutual tariffs for 90 days, easing market concerns about a renewed escalation in the trade war.
However, during Tuesday’s session, the dollar slightly retreated to settle at 101.41, as investors moved to take profits and awaited US inflation data. Despite this minor pullback, the dollar has maintained its gains amid an improved short-term outlook for the US economy.
Markets are now awaiting the release of the US Consumer Price Index (CPI) data for April. Expectations point to the annual rate holding steady at 2.4%, with a monthly increase of 0.3%. As for the core reading (excluding food and energy), it is expected to come in at 2.8% year-on-year.
Persistently elevated inflation at these levels may prompt the Federal Reserve to keep interest rates unchanged temporarily, with the possibility of delaying any cuts until the September meeting. That meeting could see a 50-basis-point cut if other economic indicators weaken in the coming period.
The euro recorded a partial recovery after sharp losses exceeding 1.4%, amid anticipation of investor confidence data from Germany, which may show relative improvement following the easing of trade tensions. From a technical perspective, the euro found strong support in the 1.1030 – 1.1050 range.
The British pound rose by 0.3% despite negative labor market data, as the unemployment rate increased to 4.5%. Technically, this movement is attributed to the lack of strong signals from the Bank of England regarding near-term monetary policy changes.
Most Asian currencies edged higher on Tuesday after the announcement of the US-China agreement to reduce mutual tariffs. The USD/JPY pair fell to 147.87, while the Chinese yuan strengthened to 7.1995 in both the onshore (CNY) and offshore (CNH) markets. The US dollar also declined against the Singapore dollar by 0.2% and against the Philippine peso by 0.4%.
Despite positive signals from abroad, US fiscal policy remains a weak point due to sharp disagreements with the Republican Party over spending and deficits. According to Deutsche Bank, this uncertainty in fiscal direction may limit the dollar’s ability to fully benefit from trade de-escalation and could delay any sustainable gains for the US currency.
