USD/JPY rallies above 148.00 as USD soars on US-China trade truce

• USD/JPY surges above 148.20 as the 90-day pause in US-China tariffs has strengthened the US Dollar.
• The US and China have lowered tariffs by 115%, but the 20% fentanyl levy on Beijing is still intact.
• The US-China trade truce has diminished the safe-haven demand for the Japanese yen.

The USD/JPY pair soars above 148.20 during European trading hours on Monday, the highest level seen in a month. The asset strengthens as the United States (US) and China have agreed to a 90-day truce after a two-day meeting in Switzerland over the weekend.

In a joint statement, the US and China have announced that they have lowered tariffs by 115%. The Washington reported that import duties on Beijing still have the 20% fentanyl levy, but have assured that there have been "constructive discussions" to resolve the same.

Signs of an averted Sino-US trade war have strengthened the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, surges to near 101.80, the highest level seen in a month.

In April, investors liquidated positions in the US Dollar and US assets heavily after President Donald Trump imposed reciprocal tariffs.

The next trigger for the US Dollar is the US Consumer Price Index (CPI) data for April, which will be published on Tuesday. The impact of the inflation data is expected to be limited, unless it diverges significantly from the consensus, as the Federal Reserve (Fed) is more focused on consumer inflation expectations, which have elevated due to the announcement of new economic policies by US President Trump. However, increased confidence in the US-China trade truce is expected to diminish inflation projections.

Meanwhile, the Japanese Yen (JPY) underperforms across the board as positive outcomes from US-China trade talks have diminished its safe-haven demand significantly. In the domestic region, investors seek fresh cues on when the Bank of Japan (BoJ) will raise interest rates this year.