The U.S. dollar surged sharply on Monday, posting its largest daily gain in six months, driven by optimism after the U.S. and China agreed to notably reduce tariffs over a 90-day negotiation period. U.S. Treasury Secretary Scott Bessent confirmed upcoming high-level talks, emphasizing targeted protection rather than broad economic decoupling. Treasury yields jumped, and the dollar index reached its highest since April 10.

Fed Signals Less Urgency for Cuts

Federal Reserve Governor Adriana Kugler indicated reduced urgency for rate cuts as tariff easing mitigated economic uncertainties, pushing Treasury yields higher and flattening the yield curve (2s-10s spread narrowing to +49.1bp). Domestically, President Trump signed an executive order targeting lower U.S. drug prices, further easing inflation concerns.

EUR/USD, GBP/USD Slide Sharply

EUR/USD fell to four-week lows, breaking below its 21-day moving average at 1.1335, with short-term momentum indicating potential declines towards 1.1017. GBP/USD also weakened notably, hitting three-week lows near the key 1.30 support, amid cautious comments from Bank of England policymakers over persistent economic risks.

Yen Weakens as Risk Appetite Returns

USD/JPY experienced its strongest daily advance in several years, driven by surging Treasury yields, aggressive short-covering, and falling volatility. Technically bullish, the pair traded comfortably within the Ichimoku cloud (147.90-150.67), approaching resistance near 149.70.

Equities Surge, Commodities Mixed

Global equities rallied sharply, with the S&P 500 gaining over 3% on renewed trade optimism. Oil prices rose 1.6% on hopes of recovering global demand. Conversely, gold dropped over 3%, pressured by rising yields and dollar strength; copper fell modestly by about 1%.

Market Snapshot:

• EUR/USD down significantly, targeting 1.10
• USD/JPY sharply higher, testing key resistance
• GBP/USD weakens towards 1.30 support
• Dollar Index (DXY) at highest since April