- Trump announced a trade deal with the UK last week.
- Chinese and US officials met and agreed to pause tariffs for 90 days.
- This week, the US will release inflation figures.
Currency futures collapsed at the start of the week as easing global trade tensions continued supporting the dollar. The biggest losers were safe-haven currencies like the yen and the Swiss franc. At the same time, easing geopolitical tensions weighed on these currencies. Meanwhile, market participants are gearing up for crucial US inflation figures.
Currency futures had a difficult week as the dollar ended higher. The greenback gained during the week due to optimism over easing global trade tensions. President Trump announced a trade deal with the UK, leaving a 10% tariff on its goods. The deal raised hopes of another deal with China.
Dollar index (Source: Bloomberg)
Over the weekend, Chinese and US officials met and agreed to pause tariffs for 90 days. At the same time, reports revealed that China was ready to cut the US trade deficit. The move paused a raging trade war that had raised the risk of a global recession. Moreover, it had destroyed investor confidence in the US economy, sending cash to neighbors like the Eurozone.
However, by Monday, the dollar shone brighter than any other currency, and investor confidence in the US rebounded. Meanwhile, safe-haven currencies and the euro collapsed.
Meanwhile, traders also focused on monetary policy. The US Federal Reserve kept interest rates unchanged last week as expected. Additionally, Powell maintained his cautious stance, stating that it was not clear where the economy was heading. Therefore, the central bank will likely remain on hold. Market participants have pushed back the timing for the next rate cut to July.
On the other hand, the Bank of England cut rates by 25-bps. However, some policymakers voted against cutting, leading to a surge in the pound. At the same time, traders slashed bets for future rate cuts.
Elsewhere, India and Pakistan agreed on a ceasefire after a four-day war that had raised worries about the global economy. The move boosted risk appetite. At the same time, Russia’s Putin announced that he was ready to meet Ukraine’s Zelensky in person. The news raised hopes of a pause in the prolonged war.
This week, the US will release inflation figures. Upbeat numbers will ease pressure on the Fed to cut rates. In the meantime, lackluster statistics could intensify the pressure. However, policymakers will likely keep their focus on growth as well.
