US dollar surges after US and China agree to reduce tariffs
US dollar soared while the Japanese yen, Swiss franc and euro plunged against the greenback following the tariff reduction announcement. PHOTO: REUTERS
LONDON – The dollar soared and government bonds sold off as markets reacted to a de-escalation in the trade war between China and the US, which agreed to temporarily lower some tariffs for 90 days.
A gauge of dollar strength rose as much as 0.9 per cent and the yen, a traditional haven, plunged as progress in talks stoked risk appetite across asset classes. The US 10-year yield climbed seven basis points to 4.45 per cent, its highest in nearly a month, while stocks got a boost on both sides of the Atlantic.
It is a major potential pivot point for markets, which have been roiled by US President Donald Trump's attempts to rewire global trade. He targeted China with particularly punitive tariffs, sparking a trade war and fears of a recession.
'This kind of coordinated tariff relief, even if temporary, changes the investment landscape,' said Mr Nigel Green, chief executive officer of deVere Group. 'It clears a path for businesses to recalibrate their outlook, and for markets to rally on something more than just hope.'
After weekend talks in Geneva, the US and China issued a joint statement indicating that they would temporarily lower tariffs on each other's products for 90 days. It buys the world's two largest economies three more months to resolve their differences.
In the US, Nasdaq 100 futures surged as much as 3.9 per cent while S&P 500 futures rose 3.1 per cent. Europe's Stoxx 600 index climbed as much as 1.2 per cent but gains were tempered by a drop in pharmaceutical stocks as Mr Trump said he planned to order a cut in US prescription drug costs.
Still, the move toward de-escalation of trade tariffs spurred some big sector-level moves in Europe, with shipping stocks including Danish container giant A.P. Moller-Maersk A/S surging 13 per cent and Germany's Hapag-Lloyd AG up around 10 per cent. Automakers Stellantis NV, Mercedes-Benz Group AG and BMW AG all rose over 5 per cent.
'These are cuts in tariffs which are much deeper than what was expected,' said Mr David Kruk, head of trading at La Financiere de L'Echiquier. 'For those who were bearish since the tariffs announcement, this is a real pain trade. There is no more dip to buy so if you were not invested, it's really hard to go in now.'
Havens slide
The Swiss franc and euro also plunged against the greenback following the announcement. The common currency, which had emerged as a haven amid the rout in US assets, fell 1.3 per cent to about US$1.11, putting it on track for its worst day this year.
'This is positive for G10 risk especially the Antipodean currencies and the US dollar,' said Mr Valentin Marinov, head of G10 FX strategy at Credit Agricole SA. 'Easing US growth fears should further help restore market confidence in the USD-denominated assets.'
Traders rushed to pare wagers on the extent of interest rate cuts from central banks this year, as concerns over the economic outlook ebbed.
Swaps now favour a quarter-point reduction in September from the Federal Reserve, compared to as soon as July last week. The European Central Bank is expected to cut rates by less than 50 basis points for the remainder of the year, versus more than 60 basis points at Friday's close.
Still, the relief for US assets may prove temporary. Even before the announcement on May 12, investors were warning that the US administration's aggressive trade policies exposed the risk of significant overweights to the region, meaning outflows would likely endure even if trade tensions dissipated.
'We believe concerns around the US hard-data outlook persist, and potential asset allocation shifts away from US assets remain medium- to longer-term headwinds for the greenback,' said Mr Mohamad Al-Saraf, an analyst at Danske Bank. BLOOMBERG
Join ST's Telegram channel and get the latest breaking news delivered to you.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
an hour ago
- Straits Times
US, China set for June 9 trade talks in London
FILE PHOTO: U.S. and Chinese flags are seen in this illustration taken March 20, 2025. REUTERS/Dado Ruvic/Illustration/File photo WASHINGTON - Three of President Donald Trump's top aides will face their Chinese counterparts in London on Monday for talks to resolve a trade dispute between the world's two largest economies that has kept global markets on edge. U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer will represent Washington in the talks, said Trump, who announced the talks in a post on his Truth Social platform but provided no more details. It was not immediately clear who would represent China. The Chinese embassy in Washington did not immediately respond to a request for comment. "The meeting should go very well," Trump wrote. The scheduling of the meeting comes a day after Trump spoke to Chinese President Xi Jinping in a rare leader-to-leader call amid weeks of brewing trade tensions and a battle over critical minerals. Trump and Xi agreed to visit one another and asked their staffs to hold talks in the meantime. Both countries are under pressure to relieve tensions, with the global economy under pressure over Chinese control over the rare earth mineral exports of which it is the dominant producer and investors more broadly anxious about Trump's wider effort to impose tariffs on goods from most U.S. trading partners. China, meanwhile, has seen its own supply of key U.S. imports like chip-design software blocked. The countries struck a 90-day deal on May 12 in Geneva to roll back some of the triple-digit, tit-for-tat tariffs they had placed on each other since Trump's January inauguration. The preliminary deal sparked a global relief rally in stock markets, and U.S. indexes that had been in or near bear market levels have recouped the lion's share of their losses. Though stocks rallied, the temporary deal did not address broader concerns that strain the bilateral relationship, from the illicit fentanyl trade to the status of democratically governed Taiwan and U.S. complaints about China's state-dominated, export-driven economic model. Since returning to the White House in January, Trump has repeatedly threatened an array of punitive measures on trading partners, only to revoke some of them at the last minute. The on-again, off-again approach has baffled world leaders and spooked business executives. Beijing sees mineral exports as a source of leverage - halting those exports could put domestic political pressure on the Republican U.S. president if economic growth sags because companies cannot make mineral-powered products. In recent years, the United States has identified China as its top geopolitical rival and the only country in the world able to challenge the U.S. economically and militarily. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
2 hours ago
- Straits Times
US, China to hold trade talks on June 9 in London, Trump says
FILE PHOTO: U.S. and Chinese flags are seen in this illustration taken March 20, 2025. REUTERS/Dado Ruvic/Illustration/File photo US, China to hold trade talks on June 9 in London, Trump says U.S. President Trump on Friday said three of his cabinet officials will meet with representatives of China in London on June 9 to discuss a trade deal. In a post on his Truth Social platform, Trump said Treasury Scott Bessent, Secretary of Commerce Howard Lutnick, and United States Trade Representative Jamieson Greer will attend from the U.S. side. "The meeting should go very well," Trump wrote. The scheduling of the meeting comes a day after Trump spoke to Chinese President Xi Jinping in a rare leader-to-leader call amid weeks of brewing trade tensions and a battle over critical minerals. The countries struck a 90-day deal on May 12 to roll back some of the triple-digit, tit-for-tat tariffs they had placed on each other since Trump's January inauguration. Though stocks rallied, the temporary deal did not address broader concerns that strain the bilateral relationship, from the illicit fentanyl trade to the status of democratically governed Taiwan and U.S. complaints about China's state-dominated, export-driven economic model. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
International Business Times
2 hours ago
- International Business Times
Gold Edges Higher as Rate Cut Hopes Grow; Silver Hits 13-Year Peak on Industrial Demand
Gold offered a glimmer of hope for many investors who kept an eye on the tumultuous markets this week. Amid mounting jobless claims and softer labor data in the U.S., expectations for a Federal Reserve interest rate were reinforced. That helped gold recover a bit of lost ground and lay the foundation for a weekly gain even as uncertainty of a more general sort continued to roil world financial markets. Spot gold was up 0.2% to $3,359.26 an ounce on Friday at 11:51 GMT. For the week, bullion rose 2.1%, as lackluster economic data weighed on the dollar and fueled talk of interest-rate cuts. U.S. gold futures also rose 0.2% to $3,382.70. Investors were responding to a report from the Labor Department on Thursday that said unemployment claims had surged to a seven-month high. Alexander Zumpfe, a precious metals trader at Heraeus Metals Germany, said the labor market signals outweighed President Donald Trump's recent phone call with Chinese President Xi Jinping in impacting gold. The leaders talked about trade and the supply chains for critical minerals, but the effect on investor sentiment was limited. The next big market driver is the U.S. non-farm payrolls release later Friday. Analysts anticipate the addition of about 130,000 jobs in May, with the unemployment rate expected to remain 4.2%. Markets are, in turn, likely to rely more upon the notion that the Federal Reserve may not wait as long as it once did to deliver rate cuts if the numbers disappoint. Gold, which is popular as a safe store of wealth during times of economic and political turmoil, typically rises when interest rates are low. The decline in yields makes non-yielding assets like gold more attractive. In the meantime, it has been Silver's time to shine this week. While it fell 0.1% on Friday to $36.11 an ounce, it earlier hit its most in more than 13 years. Analysts point to strong industrial demand and tight supply as driving the rally. Platinum rose too, gaining 2.4% to $1,157.11 — its highest level since March 2022. Palladium rose 1.5 percent to $1,020.75. Short-term gold potential is safely on hold, but investors are starting to look at undervalued metals.
