US Dollar holds near one-month high on US-China deal to temporarily lower tariffs

LONDON (May 12) The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, exceeds a more than 1% rally on Monday after China and the United States (US) agreed to a 90-day pause in their trade war by slashing tariffs on both sides. After a weekend of discussion, US Treasury Secretary Scott Bessent announced the defusing of the trade war between the two nations: China will lower its tariffs on US goods to only 10% from the original 125%, while the US will do so to 30% (from 145%) on Chinese goods, both for 90 days, Bloomberg reports. The news sent the US Dollar to its highest level in one month.

Several correlations are kicking in again on the back of this event, with the benchmark 10-year US Treasury yield hitting 4.45%. The rate differential gap between the US and other countries sees the Greenback being valued higher against the local currencies of countries with lower yields. The repercussion of this correlation could be that Federal Reserve rate cuts for 2025 get fully priced out. 

Daily digest market movers: Roll with the punches

• US Treasury Secretary Scott Bessent announced during a press conference in Switzerland the breakthrough between the US-China trade war has led to a pause of 90 days and the lowered reciprocal tariffs for both parties. Bessent went on by saying that both countries want to defuse the situation and said that a possibility of a China purchasing agreement could be possible, Bloomberg reports. 
• At 14:25 GMT, Federal Reserve Bank Governor Adriana Kugler delivers a speech on the economic outlook at the National Association for Business Economics and the Central Bank of Ireland's International Economic Symposium, in Dublin, Ireland.
• Around 18:00 GMT, the Loan Officer Survey (SLOOS) for the first quarter is due. The report often tells more about the lending circumstances in the US for households and small businesses. 
• Equities see the US futures outshine all other indices. European equities are up by roughly 1.50%, while US futures are seeing between 3% to even 4% gains. 
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 7.9%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 44.1%.
• The US 10-year yields trade around 4.45%, edging higher towards levels not seen since the beginning of April, and reducing rate cut bets for 2025.

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