Dollar climbs as hopeful optimism builds on trade

The dollar is trading higher now to start European trading as the UK confirms that Trump’s announcement later will be an agreement to a framework for a trade deal. This means laying out the groundwork and discussion points for negotiations over the next few weeks/months, but at least there is some progress.

USD/JPY has raced higher to around 144.40 now with EUR/USD easing slightly to 1.1285 on the day from around 1.1305 earlier. GBP/USD is also down 0.1% to 1.3285 while USD/CHF is up 0.4% to 0.8270 currently. Meanwhile, gold is down 1.2% to $3,324 as sellers look to break the near-term bullish hold here.

As things stand, there are two main things that market players are hoping to be more optimistic about.

The first will come today from Trump’s announcement later at 1400 GMT. That will involve the agreement to the framework for a trade deal between the US and UK. It’s a good first step to reaching a deal and while it might seem like a formality, you never know with Trump. But I think at this point, this should be a given – it’s just a matter of when.

The interesting point to watch out for though is the details on what tariffs will be stuck in place for the UK.

As a reminder, the UK is part of the shortlist of six countries that Trump has deemed as a “priority” to get a deal done. The others being India, South Korea, Japan, Vietnam, and Indonesia. And as another reminder, the UK was not part of the initial reciprocal tariffs list considering the more balanced nature of trade with the US. So, they were “only” slapped with a blanket 10% tariff alongside other tariffs on steel, aluminum, and autos.

So, it will be important to see what levels the UK will be stuck with on any deal. And that will also help set the tone on what to expect from other countries, in particular those higher up on the initial reciprocal tariffs list.

The second main thing is the supposed trade talk between the US and China this weekend. While the US camp is saying that this is a “starting point” for negotiations, the Chinese camp has been labelling this meeting as a mere “engagement” or “touch point”. The exact wording used by the Chinese embassy is ‘接触’. So, that might offer some insight as to how both sides are going to approach the meeting.

At best, we will get to see both sides engage in more talks over the coming weeks/months. But even so, what happens in between all of that?

If Trump’s position is as what he said here yesterday, it is going to be tough to see any fruitful discussions between the two countries. We’ll see the can keep being kicked down the road and in the meantime, the tariffs in place will continue to bite at both economies as well as the global economy.

For now, there’s plenty of hope for things to turn out for the better as we look towards the end of the week. But it’s also best to reminded that the reality of the situations above might end up differing a lot from what traders are hoping for.

That might gear us towards a buy the rumour, sell the fact predicament in the bigger picture. That unless Trump continues to find new stories to keep propping up the market that is.