The US Dollar Index (DXY) rallied to a near one-month high of 100.86 on Friday before reversing course as sentiment soured ahead of weekend China trade talks and a lukewarm reaction to the recent US-UK trade deal. At the time of writing, DXY trades near 100.45, paring earlier gains as traders reassess the global trade and monetary outlook.
Optimism from the US-UK trade announcement quickly faded after market participants scrutinized the deal’s terms. Though presented as a victory, the agreement retains the 10% tariff on UK goods entering the US while easing American access to British consumer markets. The arrangement falls short of the comprehensive deal previously promised and does little to reassure investors ahead of more complex negotiations with China.
Tariff Talks with China Cast Doubts on Dollar Strength
The market is now closely watching the upcoming US-China trade talks in Switzerland. While not expected to produce a deal, the discussions aim to defuse rising tensions. However, China’s Ministry of Commerce has maintained that any talks are contingent on the US dropping tariffs unilaterally—a stance that could hinder progress.
The Dollar had initially strengthened on hopes that improved trade relations and moderate inflationary pressure might support continued US growth. However, with the China talks overshadowed by hardened rhetoric and weak precedents, the US Dollar Index may struggle to hold recent gains. Reports from Bloomberg suggest that President Trump hinted at reducing tariffs by up to 50% if China cooperates, but such conditional offers may not inspire confidence in long-term resolution.
Fed Speeches Take Center Stage as Market Eyes Rate Cuts
The Federal Reserve takes over the spotlight today with multiple high-profile speeches. Governor Adriana Kugler and New York Fed President John Williams are scheduled to speak at the Reykjavik Economic Conference in Iceland, while later events include remarks by Fed Bank of Chicago President Austan Goolsbee and a panel featuring Governor Lisa Cook and other senior officials.
With the Fed interest rate outlook still unclear, traders are parsing every comment for policy clues. According to the CME FedWatch tool, the odds of a rate cut in June stand at 17.1%, but the probability jumps to 63.2% for the July meeting. Meanwhile, US 10-year Treasury yields have edged back up to around 4.37% after a mid-week decline.
Dollar Bulls Hit Resistance
Technically, the US Dollar Index remains bullish above the former resistance level of 100.22, which is now expected to act as support. A continued move higher could face resistance at 101.90—a key level last seen in December 2023—and eventually at the 55-day Simple Moving Average around 102.47.
In summary, the US Dollar Index has lost upward momentum ahead of pivotal trade and monetary developments. The balance between diplomatic uncertainty with China and cautious optimism from the Fed will likely shape the greenback’s path in the coming days.
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