Global Diplomatic Breakthrough: US and China Reach One-Year Trade Truce
The US and China reached a trade truce, and the Bank of Japan and the European Central Bank diverged in policy, jointly driving the US dollar higher. Risk sentiment improved, but policy divergence remains a key factor dominating the market.
The meeting between US President Donald Trump and Chinese President Xi Jinping during the APEC summit achieved a major breakthrough, with both sides agreeing to suspend the tariff war for 12 months and postpone all new trade measures. Most importantly, the threat of imposing 100% tariffs on Chinese imports, originally scheduled for November 1st, has been “fundamentally eliminated.” In return, China pledged to resume large-scale purchases of US agricultural products.
The trade truce significantly boosted global risk appetite, and markets quickly recovered from intraday losses caused by Meta earnings reports and the Federal Reserve’s hawkish tone.
Central Bank Decision: Policy Divergence Continues to Widen
Yesterday’s meeting between the Bank of Japan (BoJ) and the European Central Bank (ECB) highlighted the deepening divergence in global monetary policy, a trend that continues to support a stronger dollar while putting downward pressure on the yen and the euro.
- The Bank of Japan (BoJ) maintained its interest rate at 0.5% , as expected . While Governor Kazuo Ueda maintained a cautiously hawkish tone, his prudent wording dampened market expectations for short-term action. The widening interest rate differential between the US and Japan pushed the yen to its lowest level against major currencies since February.
- The European Central Bank (ECB) kept its main interest rates unchanged, maintaining a neutral tone . ECB President Christine Lagarde warned that the growth outlook remains “fraught with uncertainty” and reiterated its “data-dependent, meeting-by-meeting” strategy, which failed to provide support for the euro.
The US dollar dominates the market, approaching 100.00.
The Federal Reserve’s cautious hawkish stance, the Bank of Japan’s conservative position, and the European Central Bank’s wait-and-see attitude have collectively led to the dollar regaining its dominant position.
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The US Dollar Index (DXY) broke strongly above the 99.00 level, reaching a multi-month high and confirming a short-term upward trend. Technically, the dollar is currently holding steady above 99.00 , with momentum leaning towards a further test of the 100.00 level.
USDX, H4 Chart | Source: Ultima Markets MT5 -
Foreign Exchange Outlook : Policy divergences will help the US dollar continue to strengthen in the short term.
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Author：Joshen Stephen｜Senior Market Analyst at Ultima Markets
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