Dollar Climbs and US Stocks Ride Risk-On Wave on Trade Talk Optimism

The US Dollar Index, tracking the currency against six major peers, rose 0.13% to 99.07 from 98.94, hitting a daily high of 99.39 after dipping to 98.86. US stocks also climbed, with the Dow Jones Industrial Average up 0.3% at 42,861, the S&P 500 gaining 0.4% to 6,027, and the Nasdaq advancing 0.4% to 19,656. Positive remarks from President Donald Trump about US-China trade talks in London, coupled with strong US jobs data, fuel this momentum, though the World Bank’s lowered 2025 global growth forecast to 2.3% tempers gains.

Trade Talks Spark Optimism

President Donald Trump’s comments that US negotiators, including Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, are “doing well” in London talks with China’s Vice Premier He Lifeng have lifted market sentiment. Reports indicate flexibility in easing US restrictions on Chinese tech exports in exchange for increased rare earth mineral supplies, critical for technology and defense sectors. Despite China’s exports to the US falling 35% year-over-year in May, the prospect of a trade thaw supports the dollar and equities. However, risks remain, as the World Bank warns that unresolved trade tensions could further dampen global growth.

Jobs Data Bolsters Dollar

Last week’s Nonfarm Payrolls report, showing 139,000 jobs added in May against expectations of 126,000, underscores a robust US labor market. Wage growth also accelerated, rising 0.4% monthly and 3.9% annually, compared to 0.3% and 3.7% previously. Stable unemployment rates further reduce pressure for immediate Federal Reserve rate cuts, supporting the dollar. The CME FedWatch Tool shows a 54.7% chance of a 25-basis-point cut in September, but strong data could delay easing, keeping the dollar firm.

Wall Street Rallies on Trade Hopes and Risk Appetite

US equities are buoyed by improved risk appetite and declining US Treasury yields, which typically move inversely to stocks. The Dow, S&P 500, and Nasdaq’s gains reflect optimism from trade talks and solid economic data. However, earlier market volatility, driven by Trump’s tariff threats, highlights the fragility of this rally. A failure to secure concrete trade agreements could shift sentiment, pushing investors toward safe-haven assets like the Yen or gold.

What’s Next for Markets?

Wednesday’s US CPI data, expected to show headline inflation rising to 2.5% year-over-year from 2.3%, will be pivotal. A hotter-than-expected print could strengthen the dollar further, potentially pushing the USD/JPY pair toward 145.50, while boosting bond yields and capping stock gains. Conversely, a softer report might weaken the USD, supporting equities but pressuring USD/JPY toward 144.50. Markets must navigate trade optimism against global growth concerns, with the dollar and stocks poised for volatility as outcomes unfold.