Dollar slips after rally, focus shifts to U.S.-China trade talks

CNBC

5 hours ago

The dollar slipped against all major currencies on Monday, as exuberance over an upbeat U.S. employment report gave way to caution ahead of pivotal U.S.-China trade talks set to take place in London later in the day.
The talks come at a crucial time for both economies, with China grappling with deflation and trade uncertainty dampening sentiment among U.S. businesses and consumers, prompting investors to reassess the dollar's safe-haven status.
Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer are expected to represent the U.S. at the trade talks, while vice premier He Lifeng would likely be present with the Chinese delegation.
"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," said Charu Chanana, chief investment strategist at Saxo Markets.
Friday's upbeat U.S. jobs report yielded some relief for investors following other bleak economic data last week.
The dollar advanced against major peers after the employment report, which cut weekly declines in the dollar index by more than half. However, it is still down by more than 8.6% for the year.
On Monday, the yen firmed 0.5% at 144.11 per dollar, as data showed Japan's economy contracted at a slower-than-expected pace in the January-March period, while Prime Minister Shigeru Ishiba weighed in on the impact interest rates could have on the economy.
The euro edged up 0.2% and was last at $1.1421 as markets continued to price-in the European Central Bank's hawkish monetary policy outlook issued last week.
The dollar index, which measures the U.S. currency against six others, dipped 0.3% to 98.92, as yields on U.S. Treasury tenors eased marginally after Friday's jump.
Also on the trade front was a report that said Japan's chief trade negotiator Ryosei Akazawa is planning a sixth round of talks in Washington.
An inflation report out of the U.S. for the month of May will be in the spotlight later in the week as investors and Federal Reserve policymakers look for evidence on the damage trade restrictive policies have had on the economy.
Fed officials are in a blackout period ahead of their policy meeting next week, but they have signalled that they are in no rush to cut interest rates and signs of better-than-feared economic resilience are likely to further cement their stance.
Interest rate futures indicate that investors are anticipating the central bank may cut borrowing costs by 25 basis points, with the earliest move expected in October this year, according to data compiled by LSEG.
"May is the first month where the impact of Trump's 10% universal tariff on imports ex-USMCA is expected to show. The Fed will want a few months of inflation data in order to judge the tariff impact and most importantly, its persistence," analysts at ANZ Bank said.