The dollar pulled back on Tuesday as softer-than-expected U.S. inflation eased pressure on the Federal Reserve to maintain restrictive monetary policy. April CPI rose just 2.3% year-on-year, the slowest pace in four years, giving the Fed flexibility despite President Trump's renewed calls for rate cuts. Treasury yields edged higher, with the 2s-10s yield curve slightly steepening to 46.1 basis points, reflecting improving economic sentiment.

US-China Trade Tensions Ease Further

Investor confidence strengthened following positive U.S.-China developments. The White House officially cut tariffs on small Chinese imports, while Beijing reciprocated by reducing tariffs on U.S. goods to 10% for 90 days, starting Wednesday. China also lifted restrictions on Boeing aircraft deliveries. Meanwhile, President Trump secured a major $600 billion tech-focused investment from Saudi Arabia, underpinning market optimism. The S&P 500 rose over 1%, led by gains in technology and energy stocks.

EUR/USD and GBP/USD Recover

EUR/USD rebounded strongly, recovering Monday’s losses on improved risk sentiment and stronger-than-expected German investor confidence data for May. Still, technical resistance near 1.1200 limits upside potential. GBP/USD strengthened notably, nearing its key 21-day moving average at 1.3302, supported by hawkish remarks from BoE Chief Economist Huw Pill, despite signs of cooling in the UK's labor market.

Yen Firms Slightly, Commodity Currencies Surge

USD/JPY slipped decisively below its Ichimoku cloud, signaling short-term yen strength despite a broader underperformance amid improving risk appetite. AUD/JPY surged nearly 1% to March highs as commodity-linked currencies benefited from risk-on flows. Oil prices jumped 2.87% amid stronger global demand expectations, gold rose modestly by 0.4%, and copper surged 2.12%.

Market Snapshot:

• EUR/USD rose 0.88%
• USD/JPY fell 0.62%
• GBP/USD advanced 0.96%
• AUD/USD surged 1.68%
• Dollar Index (DXY) down 0.78%