US Dollar Index (DXY) returns below 99.00 with all eyes on the US-China meeting
- The Dollar accelerates its reversal with investors turning cautious ahead of the US-China trade talks.
- Traders are now looking past the strong US Nonfarm Payrolls report seen on Friday.
- US President Trump affirmed this weekend that the negotiations will go "very well" .
The Dollar is featuring the weakest performance of the G8 currencies on Monday as investors shifted their focus from the upbeat US Nonfarm Payrolls report to the trade negotiations between the US and China, due later today in London.
The USD Index (DXY), which measures the value of the Greenback against the world’s six most traded currencies, is accelerating its reversal from post-NFP highs, at 99.35 on Friday, back to levels below 99.00.
The outcome of the US-China talks will drive the USD today
Investors are trimming their US Dollar long bets on Monday, in a cautious stance ahead of a meeting between China and US representatives, which will try to brush off their differences on trade, and revive the spirit that led to a reduction of their reciprocal tariffs after last month’s talks in Geneva.
A phone call between US President Donald Trump and his Chinese counterpart, Xi Jinping, last week eased some of the previous tensions and has improved expectations about today’s meeting. Trump has contributed to the optimistic market mood with a tweet over the weekend showing his confidence that the negotiations will go “very well”.
The calendar is thin on Monday, and the effect of Friday’s stronger-than-expected US Payrolls data is waning. The Fed is on its blackout period, ahead of next week’s meeting, which is likely to be a non-event, as Friday’s employment report has practically confirmed that the bank will keep interest rates unchanged, at least until September.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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