The U.S. dollar retreated on Friday, paring gains as initial optimism about the U.S.-UK trade deal faded, and caution returned before critical weekend U.S.-China trade discussions. President Trump maintained a tough stance, affirming tariffs around 80% on China were appropriate. China's central bank responded by increasing financial support to stabilize consumption and trade amid prolonged tensions.

Fed Officials Reinforce Patience Amid Uncertainty

Several Federal Reserve officials reiterated the need for cautious monetary policy given elevated trade-driven uncertainty. Treasury yields held steady, with the 2s-10s yield spread narrowing marginally to +49.8bp. Canadian employment data reflected tariff pressures, as unemployment rose unexpectedly to 6.9%, highlighting trade-related economic vulnerabilities.

Euro and Sterling Show Resilience

EUR/USD held above key support (1.1222), supported by hedging flows and bullish options positioning. A close above 1.1424 could boost bullish sentiment. GBP/USD hovered around its 21-day moving average (1.3293), but technicals remain mixed. Bank of England’s Huw Pill cautioned against ignoring potential inflationary pressures amid tariff uncertainties.

USD/JPY Pressured by Risk Aversion

USD/JPY drifted lower towards the critical 145 level, pressured by dollar softness ahead of the U.S.-China talks. A clear break above upper Bollinger resistance at 145.82 is needed for renewed bullish momentum; otherwise, range-bound consolidation is likely.

Equities Mixed, Commodities Gain

Equity markets closed slightly positive (S&P 500 +0.10%), led by energy stocks. Oil rose 1.87%, boosted by improving demand prospects ahead of Trump’s visit to Saudi Arabia. Gold (+0.93%) and copper (+0.95%) advanced amid dollar softness and cautious optimism.

Market Snapshot:
EUR/USD +0.20%, USD/JPY -0.39%, GBP/USD +0.49%, AUD/USD +0.14%, Dollar Index (DXY) -0.23%.