The United States and China have reached a temporary agreement to de-escalate their trade tensions, introducing a 90-day period of reduced tariffs. As a result, US tariffs on Chinese goods have been lowered to 30% from 145%, while China’s tariffs on US products have dropped to 10% from 125%. A new economic and trade forum was also created for ongoing dialogue. Market reactions were swift—although the US dollar initially surged, it later retreated from its peak but remains significantly higher. Among G10 currencies, the Japanese yen weakened the most, while the Australian dollar saw only a marginal decline. 

Asia Pacific Markets

In the Asia Pacific region, currency and bond markets responded to the trade developments. The Japanese yen, which had earlier peaked at JPY146.20, slipped to JPY144.85 before rebounding. It later exceeded JPY148.00, driven by higher US yields and remarks from Prime Minister Ishiba opposing a trade deal that compromises Japan’s key sectors. Japan's current account surplus also remained strong.
Meanwhile, the Australian dollar initially gained on the US-China news, climbing to $0.6460, before reversing direction and dropping to near $0.6390. Investors are now eyeing Australia’s upcoming employment report as a potential market mover later in the week.

European Markets

European currencies showed mixed performance amid broader market shifts. The euro dipped to around $1.1085 before bouncing back to nearly $1.1150. Upcoming German industrial data and the ZEW survey could influence further movement, particularly after a sharp drop in April expectations.
In the UK, the British pound found some support near $1.32 before falling to $1.3160. Recent signals from the Bank of England suggest a reduced likelihood of additional rate cuts in the near term. This has led the market to scale back expectations to potentially three more rate reductions by year-end, down from four just a week earlier.

American Markets

The announcement of the 90-day tariff pause between the US and China has fueled the dollar's ongoing upward correction. The Dollar Index reached nearly 101.80, with the potential to rise toward the 102.00–102.50 range. Market focus is shifting to the upcoming CPI report, while today's release of the federal budget is also in view—April's surplus stood at nearly $210 billion. Despite earlier projections, expected savings from government spending cuts now seem much lower, estimated around $2 billion. Reports of 280,000 layoffs among federal workers and contractors have yet to be confirmed by data. Meanwhile, fiscal deficits for Q1 2025 rose to $596 billion, outpacing last year’s figure.