The dollar index surged more than 1% to trade above 101.5 on Monday, reaching its highest level in over four weeks, after the United States and China announced a sweeping agreement to significantly reduce tariffs following productive negotiations over the weekend in Switzerland.
Dollar surges on US-China tariff cut agreement
Under the preliminary accord, the U.S. will cut tariffs on Chinese goods from 145% to 30%, while Beijing will lower its levies on American imports from 125% to 10%. The dramatic easing of trade restrictions was widely interpreted as a breakthrough in a dispute that had rattled global markets for over a year, restoring confidence in U.S. assets and giving the greenback a strong tailwind.
The rollback of tariffs not only signals a thaw in U.S.-China tensions but also alleviates concerns about global supply chain disruptions and inflationary pressures stemming from prolonged protectionism. As investors shifted back into risk assets and U.S. Treasuries faced renewed demand, the dollar gained broadly against both safe-haven and commodity-linked currencies. The yen weakened to near 148 per dollar, while the euro dipped below $1.075, pressured by persistent growth concerns in the euro area and expectations of more dovish ECB commentary later this month.
Recent U.S. data positively surprised
Adding to the dollar’s strength, recent U.S. economic data have continued to surprise to the upside, reinforcing expectations that the Federal Reserve will maintain its current stance of gradual policy normalization despite external uncertainties. While the Fed has acknowledged the drag from trade disputes in past statements, the de-escalation could limit downside risks to growth and reduce pressure for early rate cuts. The yield on the 10-year Treasury note also climbed, reflecting improving investor sentiment and bolstering dollar demand.
Looking ahead, market participants are focused on a slew of upcoming economic indicators that could further shape the dollar’s trajectory. U.S. consumer inflation figures due Tuesday will provide insight into how much of the tariff impact has filtered into prices, while Thursday’s retail sales and producer price data will help clarify the broader health of domestic demand. Traders are also eyeing any follow-up comments from Federal Reserve officials regarding the trade deal’s implications for monetary policy and financial stability.
With geopolitical risks showing signs of easing—not just in trade but also in regions such as Eastern Europe and the Middle East—analysts say the dollar could retain its recent momentum in the near term, especially if inflation remains contained and economic data continue to reflect underlying strength.
