The US-China deal fails to provide any significant support to the US Dollar.
The lack of details about the agreement has triggered some scepticism among the investors.
Markets are increasingly cautious ahead of the US CPI release and a 10-Year US Bond auction.
The Dollar featured a tepid reaction to the trade deal between the US and China. Price action has remained limited within the last four days’ trading range, with upside attempts failing to find follow-through above the 99.00 level.
The world’s two major economies seem to have agreed on a “framework” to ease restrictions on rare earths trade, allowing them to return to last month’s Geneva talks consensus. Details of the agreement, however, have been scarce, and left markets wondering about the durability of the deal.
Doubts about the deal are limiting Dollar’s upside attempts
Investors have come to terms with the idea that a deal is better than no deal, but their reaction has been far from enthusiastic. The Dollar appreciated during Wednesday’s Asian session, before trimming gains at the European session opening, with all eyes on the US CPI and an auction of US Treasuries.
Consumer inflation is expected to have accelerated in May, mainly driven by higher energy prices, but the Core CPI might start to show the impact of Trump’s tariffs. Markets are increasingly wary of an upside surprise in price pressures, which might revive stagflation fears and pose a serious challenge to the Fed.
Apart from that, a $39 billion auction of 10-year Treasury bonds will be closely watched to assess the impact of the US debt crisis on the bond market. A key point will be the interest from indirect bidders, which, in May, took 71% of the supply. A weak demand is likely to hurt the US Dollar.
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