Following a notable recovery, the US dollar initially gained further ground but eventually retreated, trimming its prior day’s gains across most G10 and emerging market currencies. While East Asian currencies had previously surged, they have now weakened for three consecutive sessions. Market attention is now focused on the upcoming US-China trade talks. Despite the potential for tariff reductions, the existing trade barriers remain significant. Chinese trade data revealed a rebound in exports, with gains in other markets compensating for the sharp drop in US-bound shipments. Meanwhile, the drying up of container traffic suggests the US may struggle to quickly substitute Chinese goods. 

Asia Pacific Markets

In Japan, the dollar approached JPY146 but fell back after failing to breach resistance levels. Technically, a close below JPY145 could signal further weakening. Japanese labor earnings growth slowed in March, and real incomes declined year-over-year. However, household spending showed an unexpected jump, hinting at stronger private consumption ahead of next week’s GDP report.
Meanwhile, the Australian dollar has been under pressure, hovering near $0.6400 after a recent reversal. It dipped further but regained some ground, remaining near the 20-day moving average. Traders await next week’s employment data.

European Markets

The euro briefly dipped below $1.12 for the first time since mid-April but recovered to around $1.1260, a level that now serves as resistance. Unless it can rise convincingly above this point, the euro remains in a downward trend and is on track for a third consecutive weekly loss. Economic data from the region is sparse, with only Germany’s ZEW survey on the horizon.
The British pound, on the other hand, declined sharply, confirming signs of a potential peak. It dropped to about $1.3210 before rebounding slightly. Following a widely anticipated rate cut by the Bank of England, investors expect a cautious easing cycle. Key UK economic indicators, including jobs data and Q1 GDP, are expected next week.

American Markets

The Dollar Index reached a near four-week high just under 100.85 before slipping back to stabilize around 100.35. Should it close below 100.00, sentiment may turn negative. Despite a packed schedule of Federal Reserve speakers, investors doubt anything new will emerge to justify bringing forward expectations of a June rate cut. Upcoming US inflation data will be closely watched, with current forecasts pointing to steady headline and core figures. The focus also turns to US-China trade talks over the weekend. Optimism for a breakthrough is muted, as significant tariff cuts would still leave steep trade barriers. Meanwhile, discussions with Japan have been expedited but are unlikely to conclude before June, as Japan insists on a broader scope of tariff negotiations.