U.S. currency rebounds after tariff threats fade
The U.S. dollar regained ground on Monday after President Donald Trump softened his rhetoric toward China, easing fears of escalating trade tensions. The dollar index rose 0.2% to 99.25, reversing losses from the previous session when Trump’s threat of 100% tariffs triggered a market selloff.
The greenback also gained 0.61% to 0.804 against the Swiss franc and climbed 0.81% to 152.36 yen. Currency strategist Eugene Epstein of Moneycorp noted that despite Friday’s volatility, the dollar remains a safe haven in times of uncertainty. He said, “Trade tensions usually weaken the dollar, but when the rhetoric calms, investors return to it for safety.”
Trump signals de-escalation ahead of Xi meeting
After Friday’s tariff announcement caused shockwaves, Trump took to Truth Social on Sunday to dial back concerns, writing, “Don’t worry about China, it will all be fine!” and describing Chinese President Xi Jinping as “highly respected” despite a “bad moment.”
U.S. Treasury Secretary Scott Bessent confirmed that Trump still plans to meet with Xi in South Korea later this month to seek common ground. Analysts suggest this shift in tone could influence the Federal Reserve’s upcoming rate decision, especially if tariff threats linger by the time of the October 29 FOMC meeting.
Global currencies react to shifting sentiment
The euro fell 0.4% to $1.1571 after gaining in the previous session, as markets largely ignored France’s new cabinet announcement. Meanwhile, the yen weakened amid thin trading due to a public holiday in Japan and uncertainty surrounding new Liberal Democratic Party leader Sanae Takaichi after Komeito exited the coalition government.
With carry trades in focus, funding currencies like the yen and franc came under pressure. The Australian dollar rose 0.7% to $0.6514, benefiting from improved risk sentiment. The British pound dipped 0.18% to $1.3334, while the offshore Chinese yuan edged up, with the dollar slipping 0.14% to 7.137.
Traders weigh Fed outlook amid tariff risk
FX and rates strategist Thierry Wizman warned that the potential for renewed tariffs could complicate the Federal Reserve’s rate policy. He noted that persistent inflation and trade friction might make the Fed more cautious about easing.
For now, the dollar’s strength reflects investor optimism that diplomacy may reduce the risk of a trade war escalation. Markets will closely monitor developments as the October Trump-Xi meeting approaches, with any shift in tone likely to influence both currency markets and Fed policy expectations.
