Dollar Strengthens on Hopes of US-China Trade Truce

The US dollar held steady on Tuesday, rebounding from earlier losses as President Donald Trump's softer stance on China and a potential meeting with his Chinese counterpart raised hopes of de-escalation in tensions between the two economic heavyweights.

According to reports, Trump moderated his rhetoric over the weekend, suggesting a willingness to find common ground with China. US Treasury Secretary Scott Bessent also expressed optimism about a potential meeting between Trump and Chinese leader Xi Jinping in South Korea later this month.

The dollar index ticked 0.04% higher to 99.34, supported by Trump's comments and the prospect of renewed talks. The Aussie dollar was little changed at $0.6516, while the yen fell roughly 0.2% to 152.57 per dollar.

Currency markets were calmer in early Asian trade, following a chaotic session on Friday when Trump abruptly announced additional levies of 100% on China's US-bound exports. The move had sparked fears of a renewed trade feud, but Trump's softer stance over the weekend helped to ease tensions.

"We think, at the end of the day... a re-escalation path without any kind of an endgame in mind, may be too punitive for both sides," said Homin Lee, senior macro strategist at Lombard Odier. "So we suspect that there will be an attempt to achieve an off-ramp."

The euro traded below the $1.16 level, at $1.1566, while sterling eased 0.06% to $1.3328. The New Zealand dollar fell anew to hit a six-month low of $0.57145.

In the cryptocurrency market, bitcoin was down 0.36% at $115,380.19, after having tumbled more than 6% last week as risk sentiment took a hit. Ether fell 0.77% to $4,256.42, having similarly lost nearly 8% of its value last week.

Nigel Foo, head of Asian fixed income at First Sentier Investors, expects the yen to strengthen eventually, citing the current interest rate differential between the US and Japan. "If you ask me, given the current interest rate differential between the U.S. and Japan, which should be the primary driver of the exchange rate as well, dollar/yen should not be at 152, so I do expect this trend to reverse pretty soon."

Credit - Reuters