Forex Today: Mood improves on US-China trade deal optimism

Here is what you need to know on Monday, October 27:

Markets turn risk-positive to start the week as investors grow optimistic about the United States (US) and China reaching a trade deal heading into the highly-anticipated meeting between US President Donald Trump and Chinese President Xi Jinping. The economic calendar will not feature any high-tier data releases on Monday.

Following a meeting with top Chinese officials late last week, US Treasury Secretary Scott Bessent said that China is ready to make a trade deal to avert a new 100% tariff on Chinese imports. Bessent further noted that a framework is prepared for the Trump-Xi meeting, and added that they are anticipating that they will get "some kind of a deferral" on the rare earth export controls that China intended to apply.

Reflecting the improving risk mood, US stock index futures rise between 0.6% and 1.1% in the European morning on Monday. On Friday, the data from the US showed that the annual inflation, as measured by the change in the Consumer Price Index (CPI), edged higher to 3% in September from 2.9% in August. This reading came in below the market expectation of 3.1%. After ending the previous week in positive territory, the US Dollar (USD) Index fluctuates in a tight channel, slightly below 99.00, in the early European session.

Gold lost more than 3% last week and opened with a bearish gap. At the time of press, XAU/USD was trading below $4,100, losing nearly 1% on a daily basis.

EUR/USD holds above 1.1600 early Monday. Later in the week, the Federal Reserve (Fed) and the European Central Bank (ECB) will both announce monetary policy decisions.

USD/JPY continues to stretch higher after gaining nearly 1.5% last week and trades above 153.00. Japanese Chief Cabinet Secretary Minoru Kihara repeated on Monday that it is important for currencies to move in a stable manner, reflecting fundamentals.

GBP/USD closed the sixth consecutive trading day in negative territory last Friday and touched its weakest level since mid-October below 1.3290. The pair holds its ground on Monday and clings to moderate gains above 1.3300.

USD/CAD stays under modest bearish pressure in the European morning and trades below 1.4000.  The Bank of Canada is expected to lower the policy rate by 25 basis-points to 2.25% on Wednesday.