USD surges on US/China détente as markets reprice Fed cuts - Scotiabank

The US Dollar (USD) is up broadly with meaningful gains against all of the G10 currencies as markets respond to the de-escalation in trade tensions between the US and China. Both countries will temporarily lower their tariffs for 90 days--the US to 30% and China to 10%--in order to provide time for negotiations as they seek to reach a lasting agreement, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD surging vs. all G10 currencies as markets fade pricing of Fed cuts

"The safe havens JPY and CHF are underperforming as we head into Monday's NA session with both down nearly 2% vs. the USD. The EUR is down nearly 1.5%, while SEK and GBP are down closer to 1%. These moves are sizeable, leaving the CAD and AUD as relative outperformers with declines of 'only' 0.3% vs. the USD. The broader tone is one of strong risk appetite with broad gains across Asian and European equity indices as US equity futures gap higher with a 3% gain. In bonds, the US 10Y yield is extending its postFed climb and pushing toward 4.45% - well above its April 30 close just above 4.15%."

"The US 2Y yield is also up an impressive 11bpts on the day--reflecting a significant reassessment of the outlook for Fed cuts--and providing the USD with considerable fundamental support via spreads as yield increases in other developed government bond markets fail to keep pace. In commodities, WTI is extending its recent recovery from its recent double bottom ~$55/bbl with a measured move that implies a medium-term push to $75/bbl. Copper is trading flat within a short-term descending channel around the midpoint of its recent range. Finally, gold prices are also weak and trading in tandem with the safe haven currencies."

"The price of gold is down over $100/oz and threatening the May 1 low just above $3200. The recent double top in gold implies a medium-term push toward $3050/oz. Monday's US data release calendar is limited to the federal budget balance figures for April, ahead of Tuesday's CPI and Thursday's retail sales--both for the month of April. The Fedspeak calendar includes at least 10 speaking engagements this week, including Fed Chair Powell on Thursday."