US Dollar Index rebounds above 99.50 on US trade talks progress

• The US Dollar Index recovers to around 99.75 in Friday's early European session. 
• Hope for US trade talks with allies to support the US Dollar. 
• China pushes for tariff cancellation to end the trade war. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, edges higher to near 99.75 during the early European session on Friday amid positive developments in negotiations with allies India, Japan and South Korea. Investors brace for the final reading of the US Michigan Consumer Sentiment, which is due later on Friday.

US Treasury Secretary Scott Bessent has suggested that India is likely to become the first country to finalise a bilateral trade agreement with the US to avoid Trump's reciprocal tariffs on Indian exports. Japan's economy minister, Ryosei Akazawa, will hold a second round of trade talks with Bessent next week. 

Meanwhile, South Korea asked for "calm" and "orderly" discussions with the US on trade issues, as it seeks to work out a deal with the US before the pause on reciprocal tariffs is lifted in July. Any signs of trade talks progress could lift the Greenback in the near term.

"If the perception spreads that a reduction in tariffs is near, it could positively influence tariff negotiations with other countries, leading to a retreat from risk-off sentiment and a decrease in U.S. asset selling," which could buoy the dollar back to 145 yen, Mizuho analysts wrote in a note.

On the other hand, traders were concerned about the prospects for the US economy given Trump's inconsistent message on trade agreements and Federal Reserve intervention. Additionally, a lack of actual progress toward opening talks with China could drag the USD lower against its rivals. 

Trump said late Thursday that his administration was talking with China on trade. However, Beijing said that no negotiations had been held on the economy and trade, and it urged the US to lift all unilateral tariff measures if it really wished to resolve the issue.