United States President Donald Trump characterized the recent trade discussions between the U.S. and China, held in Switzerland over the weekend, as “very good,” further stating that a “total reset” of trade relations is currently under negotiation. Treasury Secretary Scott Bessent, who spearheaded the U.S. delegation, reported that “substantial progress” has been achieved and indicated that he will be sharing specific details later today. Financial markets are exhibiting renewed optimism in response to these developments. The prevailing expectation appears to be an initial reduction in tariffs imposed on Chinese goods, potentially reaching a level of 60%. According to Chris Turner, FX analyst at ING, investors will be carefully evaluating the revised tariff rates in conjunction with the scope of exemptions under consideration.
Trump hails ‘Very Good’ US-China trade talks in Switzerland
“We have consistently maintained that the U.S. dollar’s sustained recovery hinges on a continuous stream of positive news regarding the de-escalation of trade tensions. The Trump administration has, thus far, provided such news. While the dollar’s appreciation has not mirrored the dramatic gains observed in equity markets, there is a palpable sense that President Trump’s pragmatic approach to trade has mitigated the downside risks for the U.S. currency. However, the dollar’s current positive momentum could face a test today if Secretary Bessent’s presentation fails to adequately convey the progress made in the China negotiations to market participants. Furthermore, the economic calendar for the week ahead presents additional hurdles for further gains in the USD.”
“A key data point to watch is the inflation report, scheduled for release tomorrow. The April Consumer Price Index (CPI) may begin to reflect some upward pressure on prices. However, our economists believe that it is likely too early to observe the full impact of tariffs, considering the time lag between implementation, product shipment, and arrival at warehouses before goods appear in retail stores and online marketplaces. Our forecast for core CPI is a 0.3% month-on-month increase, aligning with consensus expectations. A similar reading is anticipated for April’s core Producer Price Index (PPI), due later in the week. These figures collectively suggest some persistent pressure on the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, but the magnitude is unlikely to trigger immediate alarm bells at the central bank. Market analysts are also closely watching for any signals from the Federal Reserve regarding potential adjustments to its monetary policy stance in response to these inflationary pressures.”
“The dollar is expected to remain subject to these countervailing forces, and the balance of risks appears increasingly delicate in both directions over the coming weeks. As this week commences, heightened scrutiny of the tangible progress achieved in the U.S.-China trade negotiations may lead to a moderation of the dollar’s upward trajectory. Nevertheless, a reasonable level of support is likely to emerge around the 100.0 level in the Dollar Index (DXY). The market’s reaction to upcoming economic data releases and any further developments in the trade negotiations will be crucial in determining the dollar’s near-term direction. Furthermore, geopolitical events and shifts in global risk sentiment could also exert significant influence on the currency’s performance.”
