The de-escalation in the US-China trade war gave the dollar a renewed boost against most G10 currencies this week. But, a fall back in Treasury yields has taken away some of those gains as we head into the weekend, and trade talks have been a double-edged sword for the greenback in Asia: speculation about US negotiators’ focus on the weakness of the region’s currencies has seen many of them stage renewed rallies against the dollar too. Meanwhile, the US President Trump’s proposed deficit-expanding “big beautiful bill”, currently working its way through Congress, could be a mixed blessing for the dollar: some fiscal expansion could see it strengthen further, but too much could reignite concerns about debt levels and spark another combined dollar/Treasury sell-off. Our base case remains, though, that the greenback will make further modest gains as long as the mood music on trade stays positive.
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