The "truce" of Sino-US tariffs triggers the market, and the US dollar index is expected to continue to rise

On the Asian session on Tuesday, the US dollar index hovered around 101.66, and the US dollar index soared by 1.5% on Monday and broke through the 101 mark, setting a new high of 101.97 in the past two months. This has formed a double blow to gold: on the one hand, the dollar denomination makes gold more expensive for overseas buyers, and on the other hand, the rebound in U.S. Treasury yields have also weakened the attractiveness of interest-free assets.

Analysis of major currencies

Dollar: As of press time, the US dollar index hovered around 101.66. The news of tariff cuts triggered a chain reaction in the market. The yield on the 10-year U.S. Treasury bonds soared to 4.45%, approaching a high that had not been seen since early April. The widening of interest rate spread between the United States and other countries has caused the US dollar to appreciate relative to currencies in countries with lower yields. Some analysts believe that the chain effect of this correlation may lead to the market completely canceling expectations for the Federal Reserve's interest rate cut in 2025. Technically, the daily chart of the US dollar index shows that the recent trend has entered a significant upward channel. From the chart, the price rebounded from the low point of 97.92, forming a clear upward wedge structure. The current price has exceeded the key level of 101.50, and the important resistance level of 102.20 is tested. In terms of MACD indicators, the DIFF line and the DEA line form a golden cross, and the MACD bar chart turns into a positive value, indicating a short-term kinetic acceleration. The RSI indicator has climbed to the 56.53 level, in a neutral and strong area, indicating that the upward momentum has been strengthened but has not yet entered the overbought range. In addition, the CCI indicators continue to rise, reflecting the current strong characteristics of the market.

Euro: As of press time, the euro/dollar hovered around 1.1103. The euro/dollar fell sharply on Monday, opening a new trading week, falling below 1.1000 for the first time, and then rebounded in the late trading, and the pair rebounded to around 1.1100. The pair still closed down 1.4% on the same day, and investors are preparing to welcome the upcoming U.S. Consumer Price Index (CPI) inflation data to be released on Tuesday. The final inflation value of the German Consumer Price Reconciliation Index (HICP) will be released on Wednesday, but there is no significant change in non-preliminary data. Pan-European GDP (GD) is expected to be released on Thursday. P) Growth data, which will be a key figure for Euro traders this week. The market generally expects quarterly and annualized GDP growth to remain at the previous 0.4% and 1.2%. Technically, the pair is still trading above the 50-day index moving average (EMA) near 1.1070, but only just now. Price momentum has been significantly bearish since the pair peaked above 1.1500 and failed to maintain key levels. Over the past 14 consecutive trading days, the daily candles closed bearish for most of the time, lasting almost three weeks.

GBP: As of press time, GBP/USD hovered around 1.3180, and GBP/USD fell on Monday, down slightly more than 1%, pushing the pair back below the 1.3200 mark, after the dollar generally rebounded. The U.S. and China reached an agreement in preliminary trade negotiations over the weekend to temporarily suspend steep triple-digit tariffs, and the market had some breathing room before the U.S.'s strange "reciprocity" tariff plan will re-instantly take effect within 90 days. The UK will issue A new batch of employment data was released, followed by key consumer price index (CPI) inflation data released in the upcoming U.S. market period. Technically, despite a bearish reversal in the short term, the GBP/USD remains firm on the bullish side. The pair is still trading at a high near the 50-day index moving average (EMA), close to 1.3085. However, the price movement has significantly declined from its recent high (over 1.3400).

Summary of news from the foreign exchange market

1. The UK consumption rose against the trend under the shadow of the trade war. Retail data is eye-catching

Data shows that British shoppers overcome concerns about the global trade war and significantly increased spending in April. Easter and sunny weather drove the sales of food, gardening equipment and clothing. The UK's overall BRC retail sales rate in April reached 7.0%. This is the largest increase in the month since the COVID-19 pandemic. As the UK experienced the most sunny April since the record in 1910, shoppers updated after a period of weak sales.Their wardrobe, clothing sales have rebounded. Another set of data released by Barclays shows that consumer spending rebounded similarly last month: The bank's consumer card transaction data increased by 4.5% compared with April 2024, the largest annual increase since June 2023. Barclays said this is the first time that spending growth has exceeded inflation in more than two years.

2. Goldman Sachs postponed the Fed's interest rate cut expectations to lower the possibility of a US recession by the end of the year. Goldman Sachs adjusted its expected time for the Fed's next rate cut to December (previously expected in July). Analysts of the bank said: "In view of the development of the situation and the significant loosening of the financial environment last month, we have raised the annual forecast of U.S. economic growth in the fourth quarter of 2025 by 0.5 percentage points to 1%, and will appear in the next 12 months. The likelihood of an economic recession has dropped to 35%. At the same time, we have lowered our core personal consumption expenditure (PCE) inflation path expectations, with a peak of 3.6% (previously expected to be 3.8%). "

3. U.S. tariff revenue surged 130% year-on-year to $16 billion

U.S. Treasury Department data showed that tariff revenue in April reached $16 billion, a surge of $9 billion from the same period last year, an increase of 130%. That set a record for the highest single-month tariff revenue in at least a decade, according to data compiled by Bloomberg. The surge in tariff revenues will help curb further expansion of the U.S. budget deficit. However, U.S. President Trump is seeking to reach a trade agreement with specific countries, and tariff revenue may decrease in the future. The U.S. federal government recorded a $1.05 trillion deficit in the first seven months of the fiscal year, an increase of 13% from the same period last year after adjusting for calendar year differences. Finance officials said that if the deferred tax factors that pushed up revenue in fiscal 2024 were excluded, the deficit in fiscal 2025 actually increased by 4%. In addition to tariffs, another revenue category that achieved growth in the fiscal year is the excise tax, which has increased by $10 billion in the past seven months. Finance officials said this is mainly due to the newly levied stock repurchase tax.

4. The ECB Management Committee warns that it is necessary to be cautious about the next rate cut.

Two members of the ECB Management Committee said that given the high uncertainty of US President Trump's economic policy, the ECB must be cautious when deciding on the next rate measures. The ECB ECNegel and the ECA CRVA highlighted the challenges brought by the new U.S. administration, including the difficulties in formulating monetary policies in the euro zone. "We need to be humble when assessing the current situation," Eskriva said, adding that the ECB must gather more information, "try to clarify which factors prevail." Negle said: "In the decision on monetary policy, it is important to be cautious and not to over-emphasize specific announcements that may change soon."

5. Fed director Kugler still believes that tariffs will have a significant impact

Federal director Kugler said on Monday that the Trump administration's tariff policy may push up inflation, dragging downCumulative economic growth, even after lowering tariffs. "Trade policies are evolving and may continue to change, even this morning. However, even if tariffs remain near the levels currently announced, they may have significant economic impacts." Kugler pointed out that the current average tariff rate in the United States is still much higher than the level in decades. She added: "If tariffs are still much higher than earlier this year, the impact on the economy will not change, including pushing up inflation and reducing economic growth."

Institutional View

1. Deutsche Bank: The impact of U.S. trade progress on the dollar is unclear

Deutsche Bank analyst George Salaveros said in a report that the impact of recent progress in easing global trade wars on the dollar is unclear. He said more positive news about U.S. trade in recent weeks has benefited more to the rest of the world in terms of economic growth than to the United States. This is not good for the US dollar, especially currencies that are sensitive to economic growth. However, for external financing in the United States, a less hostile U.S. government is obviously more favorable to the dollar because it does not hinder the inflow of funds too much.

2. Eurizon: The rise in U.S. Treasury yields are worrying, and trade talks have not boosted U.S. Treasury yields are worrying, indicating that U.S. debt and fiscal policy still concern investors. Due to uncertainty in tariffs, U.S. stocks, bond markets and the dollar suffered triple sell-offs for several weeks, and good news about the U.S. tariff agreement has boosted the stock markets and the dollar, but not U.S. Treasury bonds. While tariff talks logically have a positive impact on economic growth, the continued high yield levels suggest that the U.S. fiscal trajectory remains worrying. Ongoing budget negotiations in the U.S. Congress will be key to the bond market.

3. Institutions: Uncertainty, the euro is strong. Institutions believe that the euro will rise in the long term. Andreas Koenig, global foreign exchange head of Amundi Asset Management, said that although uncertainty surrounding the trade war continues, the force that the euro launches in the turbulent weeks in April cannot be easily eliminated. Koenig believes that "(Euro appreciation) is a structural change that may last longer and further than we currently think." Jane Foley, head of foreign exchange strategy at Rabobank, said: "Tariffs have pushed up prices of U.S. goods, and a stronger euro will make them more expensive. Another sudden surge in the euro may be disturbing." As for now, many people are optimistic about the euro. Deutsche Bank was also predicting that the euro would fall below par against the dollar this year in January, but now it is expected that Europe and the United States will rise to 1.20 by December and further climb to 1.30 by the end of 2027.

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