Dollar Holds Firm as Investors Eye US-China Trade Talks and Inflation Data
U.S.
Dollar Holds Steady Ahead of Crucial US-China Trade Talks
The U.S. dollar remained steady against all major currencies on Monday, following a recent rally fueled by an optimistic U.S. employment report. Market participants shifted their focus toward key trade negotiations between the United States and China scheduled to take place in London later in the day.
Context and Market Sentiment
The upcoming talks occur at a critical juncture for both economic powers. China is facing deflationary pressures, while trade uncertainties continue to weigh on the confidence of U.S. businesses and consumers. This environment has led investors to reassess the dollar’s traditional role as a safe-haven currency.
Representing the U.S. delegation will be Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer. The Chinese side is expected to include Vice Premier He Lifeng.
Charu Chanana, chief investment strategist at Saxo Markets, commented: “A deal to keep talking might be better than nothing, but unless we see a concrete breakthrough, the impact on sentiment is likely to remain muted.”
Currency Movements and Economic Data
The upbeat U.S. jobs report released on Friday provided some relief to investors after a series of disappointing economic indicators last week. The report helped the dollar strengthen against major peers and cut weekly losses in the dollar index by over half. Nevertheless, the dollar remains down more than 8.6% year-to-date.
The Japanese yen firmed 0.10% to 144.750 per dollar, buoyed by data showing Japan’s economy contracted at a slower-than-expected rate in the first quarter.
The Swiss franc held steady at 0.8221 per dollar.
The euro remained flat at $1.1399.
The British pound traded at $1.3535.
The dollar index, which measures the U.S. currency against six major currencies, was stable at 99.169.
The yield on 10-year U.S. Treasury notes was unchanged in early Asian trading after rising more than 10 basis points on Friday.
The New Zealand dollar was last at $0.6020.
The Australian dollar edged up 0.1% to $0.65 amid light trading due to a public holiday.
Inflation and Monetary Policy Outlook
Later this week, attention will turn to U.S. inflation data for May, as investors and Federal Reserve officials seek to understand the impact of recent trade restrictions on the economy.
Federal Reserve policymakers are currently in a blackout period ahead of their next meeting, signaling no immediate plans to cut interest rates. Signs of stronger-than-expected economic resilience are likely to reinforce this cautious stance.
Interest rate futures suggest that investors expect the Fed to lower borrowing costs by 25 basis points, potentially starting in October 2025, according to data from LSEG.
Analysts at ANZ Bank noted, “May is the first month where the impact of Trump’s 10% universal tariff on imports excluding USMCA countries is expected to show. The Fed will want several months of inflation data to assess the tariff’s impact and, more importantly, its persistence.”
Chinese Currency
China’s offshore yuan was last quoted at 7.187 per dollar, ahead of the release of inflation and trade figures, which will further influence market sentiment.