In a significant breakthrough for global markets, the US dollar surged on Monday following an announcement that the United States and China had reached a deal to pause tariffs for 90 days. The agreement marks a potential turning point in the escalating trade tensions that have roiled financial markets and threatened global economic growth since former President Trump’s “Liberation Day” tariff announcements in April.
U.S. Treasury Sec. Announces United States and China Reach Agreement to Pause Tariffs for 90 Days
U.S. Treasury Secretary Scott Bessent announced on Monday that the United States and China have reached an agreement for a 90-day pause on trade measures following negotiations with Chinese officials in Geneva over the weekend.
The deal would slash reciprocal tariffs during this hiatus, temporarily easing fears of a damaging trade war between the world’s two largest economies. This development comes after weeks of escalating tensions that began with former President Trump’s “Liberation Day” global tariff announcements on April 2, which had sent markets into a tailspin.
The tariff war had threatened to disrupt global supply chains and potentially reduce trade between the two countries, which was valued at over $650 billion in 2024. While specific details of the agreement have not been fully disclosed, the arrangement appears to be designed to provide time for more comprehensive negotiations while preventing further economic damage.
The news has had immediate positive effects on global markets, with the Chinese yuan rising to its highest level since November at 7.2001 yuan per dollar.
How a Trade War Affects the Dollar, Other Currencies
The dollar’s surge following the trade deal announcement represents a significant reversal from its recent downward trend that began with the April tariff announcements.
According to Kenneth Broux, senior strategist for FX and rates at Societe Generale, “The dollar was lagging other markets in the recovery from the April lows. Now the conditions are falling into place for a deeper adjustment and a bigger recovery of the dollar to catch up with equities and bond yields.”
The greenback showed particular strength against traditional safe-haven currencies as investors moved away from defensive positions, rising 1.7% to 147.835 Japanese yen and 1.5% to 0.84405 Swiss francs. The dollar index, which measures the U.S. currency against a basket of six major currencies, has recovered significantly from its post-tariff announcement slump but remains down 2.5% from its level prior to the April 2 “Liberation Day” tariff announcement.
The euro and British pound also reflected the dollar’s newfound strength, with the euro slumping 1.3% against the dollar to $1.1109, while sterling traded at $1.3175, down 1.1%. Market analysts note that this shift represents more than just a reaction to the trade deal – it signals renewed confidence in American assets broadly, which had taken “a beating” since the chaotic rollout of sweeping tariffs last month.
Investors are now turning their attention to upcoming U.S. economic data, including the Consumer Price Index figures due Tuesday and April retail sales scheduled for Thursday, which will provide further insights into how the trade tensions have impacted the domestic economy and could influence Federal Reserve rate cut expectations.
Dollar Index Registers Significant Gains as US-China Reach Agreement to Halt Tariffs
According to data timestamped at 6:06 a.m. EDT on May 12, 2025, the US Dollar Index (DXY) was trading at 101.63, up 1.29 points or 1.29% from the previous close of 100.34. The index has moved in a day range of 100.51 to 101.79, while maintaining a 52-week range of 97.92 to 110.18.
The sharp upward movement reflects immediate market reaction to the trade deal announcement, with the index opening at 100.69 before climbing throughout early trading.
Recent performance metrics show the dollar index gaining 1.81% over the past five days and 2.00% over the past month, though it remains down 6.17% over the three-month period. The index is also down 6.31% year-to-date and 3.41% over the past year, indicating that despite today’s gains, the dollar has faced significant pressure in 2025.
The index’s sharp morning rise occurred against a backdrop of mixed performance in U.S. stock markets, with the Dow Jones Industrial Average down 0.29% at 41,249.38, the S&P 500 Index down slightly by 0.07% at 5,659.91, and the NASDAQ Composite Index essentially flat with a minimal 0.00% change at 17,928.92.
Meanwhile, global markets showed generally positive reactions to the trade news, with most Asian indices posting gains, led by India’s BSE SENSEX Index, which surged 3.74%, and Hong Kong’s Hang Seng Index, which rose 2.98%. European markets also responded favorably, with France’s CAC 40 Index up 1.59% and Germany’s DAX gaining 1.10%.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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