The US dollar surged alongside Treasury yields Monday after President Trump signaled imminent tariff negotiations with key trading partners but heightened tensions with China, abruptly canceling planned discussions and threatening additional tariffs. Hawkish comments from Fed Governor Kugler and inflation warnings by Blackrock CEO Larry Fink further bolstered yields, underpinning the dollar’s bullish stance.

Europe Balances Negotiations and Retaliation

European Commission President von der Leyen reiterated readiness for negotiations but warned of robust retaliation with potential 25% tariffs on US exports. UK Prime Minister Starmer advocated closer US ties, while Japan’s Prime Minister Ishiba proactively engaged Trump, signaling cautious optimism in bilateral relations. Treasury Secretary Bessent will lead US-Japan trade talks.

Euro Steady, Sterling Pressured

EUR/USD held within a 1.0885–1.1050 range amid cautious market sentiment, yet remains vulnerable given potential ECB-Fed divergence, risking a decline toward key support at 1.08. EUR/CHF stabilized after touching December lows. Sterling slumped sharply over 1%, breaking below its 200-day moving average amid expectations for a BoE rate cut. EUR/GBP surged into overbought territory above 0.8542, reflecting sterling’s weakening outlook.

Yen Strengthens on Yield Support

USD/JPY rebounded strongly on rising US yields and heavy short-covering, moving above technical resistance at 147.88. However, the pair remains confined below critical resistance near 148.45. Key support stands at 146.55, with volatility potentially re-emerging if breached.

Commodity Currencies Hit by Recession Fears

Commodity-linked currencies fell as recessionary worries intensified. Oil prices dropped another 2% to four-year lows. NZD/USD hit a fresh five-year low ahead of an expected RBNZ rate cut. Gold declined 2.4%, copper fell 3.3%, underscoring ongoing global growth concerns.

Equities Stabilize Amid Sector Divergence

The S&P 500 closed near flat, supported by large-cap tech stocks, while resources and real estate underperformed, reflecting cautious investor sentiment amid macro uncertainty.