Risk Assets Soar as US-China Tariff Rollback Surpasses Expectations – Action Forex
Global risk markets surged after the surprising breakthrough in US-China trade negotiations delivered results far beyond market expectations. Just days ago, hopes were low, with even the mere continuation of talks seen as a positive development. Investors had braced for a possible breakdown or at best, a symbolic gesture of engagement. Instead, both countries announced a major easing of tariffs, offering a rare dose of optimism to fragile global sentiment.
The agreement will see tariffs lowered on both sides for a 90-day period. Specifically, the US will cut its tariffs on Chinese goods from 125% to 30%, while China will reduce its duties on US goods from 125% to just 10%. The gap reflects the US’s decision to maintain a 20% base tariff linked to concerns about fentanyl imports. Still, the rollback represents a major de-escalation.
In a joint statement, both governments emphasized the intention to continue discussions in a “spirit of mutual openness” and “cooperation,” with follow-up meetings already being planned. US Treasury Secretary Scott Bessent confirmed he expects to meet Chinese officials again in the coming weeks to build on the momentum.
In the currency markets, Dollar is the strongest performer of the day. Commodity-linked currencies including the Aussie, Kiwi and Loonie are also advancing. In contrast, Yen is under significant pressure while. European majors are also lagging.
AUD/USD would now provide an important gauge to Dollar’s underlying strength in this risk-on sentiment. Technically, break of 0.6364 support will confirm short term topping at 0.6511. Deeper decline would then be seen to 38.2% retracement of 0.5913 to 0.6511 at 0.6283. Firm break there will argue that whole rise from 0.5913 has already completed.
In Europe, at the time of writing, FTSE is up 0.64%. DAX is up 0.67%. CAC is up 1.46%. UK 10-year yield is up 0.089%. Germany 10-year yield is up 0.085 at 2.646. Earlier in Asia, Nikkei rose 0.38%. Hong Kong HSI rose 2.98% China Shanghai SSE rose 0.82%. Singapore was on holiday. Japan 10-year JGB yield rose 0.035 to 1.389.
BoE’s Lombardelli: Gradual cuts warranted as wage and services inflation stay high
BoE Deputy Governor Clare Lombardelli reinforced the case for a “gradual and careful” approach to policy easing in a speech today. She noted underlying inflation “have continued to fall” despite noises. Monetary policy is still restrictive and will continue to balance the need to lower inflation with the risk of undermining already soft demand.
Lombardelli highlighted wage growth as a central focus in the disinflation process, particularly given its outsized influence on domestic services pricing. She noted that private sector regular average weekly earnings rose 5.9% in February, still well above levels consistent with BoE’s inflation target. Services inflation, a key proxy for persistent price pressure, remains elevated at 4.7% as of March. Both indicators suggest that while progress has been made, inflationary momentum in wage-sensitive sectors continues to pose a challenge.
She also addressed the global backdrop, warning that higher US tariffs and increasingly uncertain American trade policy could lower growth and inflation in the short term by dampening global demand and trade volumes. However, over the longer term, if trade fragmentation continues, it could “reduce output and productivity and would raise inflationary pressures.”
BoE’s Greene says trade risks justify rate cut
BoE MPC member Megan Greene said during a panel discussion today that while wages and inflation are moving in the right direction, they remain uncomfortably high. And more concerningly, “medium-term inflation expectations have also started picking up.”
Greene, who voted with the majority last week in favor of a 25bps rate cut, the fourth since last August, revealed that she was initially undecided going into the meeting.
She noted being “torn” between holding rates steady and cutting, but ultimately decided to support easing. A key factor in her decision was the rise in global trade tensions, driven by US President Donald Trump’s sharp tariff hikes.
Despite the subsequent temporary trade truce between the US and China announced today, Greene said it would not have changed her vote.
She also flagged continued uncertainty over US-EU trade relations as a key downside risk for the UK economy, noting that any escalation could further dampen external demand.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 144.74; (P) 145.46; (R1) 146.11; More…
USD/JPY’s rise from 139.87 accelerates higher today Break of 38.2% retracement of 158.86 to 139.87 at 147.12 suggests that whole fall from 158.86 has completed at 139.87, after defending 139.57 support and 139.26 fibonacci level. Intraday bias stays on the upside for 61.8% retracement at 151.60 next. On the downside, below 145.70 minor support will turn intraday bias neutral again first.
In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.
