Dollar surges higher as US, China bring down tariff levels for further talks

USD/JPY is now up nearly 1.5% on the day to 147.50 as the dollar is jumping higher across the board. EUR/USD is also marked down by over 1% now to 1.1120 with GBP/USD down 0.8% to test waters back under 1.3200 on the day. This comes with S&P 500 futures bordering on 3% gains while gold is down 2.9% on the day to $3,229 currently.

The moves here are coming as the US and China issues a joint statement in confirming that both sides are reducing the reciprocal/retaliatory tariff levels by 115%. On the US side, they’ll still be charging China with 30% tariffs overall. On the Chinese side, they’ll be charging the US with 10% base level tariffs.

All of this of course will be for 90 days, for now at least, as both sides seek to engage on further trade talks.

I would say barring any major implosion in talks, that 90 days is subjective and can be kicked down the road unless one side loses patience with the other. And we all know who is more likely to be the one that does. So, just be wary of that.

For now at least, it’s all sunshine again in markets as the biggest known unknown sees a significant de-escalation. That being said, it’s all about perception isn’t it? Even with the tariffs reduction here, the effective tariff rate in the US is still going to be the highest since the 1940s. So, make what you will of that.

But for market sentiment, this market has been desperate for good news from US-China relations for quite a number of weeks now. And now that we finally get it, you can see the sort of elation in the immediate aftermath at least.

This article was written by Justin Low at www.forexlive.com.