Dollar retreats ahead of U.S./China talks; euro gains

Investing.com - The U.S. dollar retreated Monday, handing back some of the previous session’s gains amid optimism for trade talks between the U.S. and China in London.

At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, dropped 0.3% to 98.890, after gaining on Friday as the U.S. jobs report yielded some relief for investors following other bleak economic data last week.

Dollar eyes London trade talks

The dollar received a boost at the end of last week after the U.S. employment report, but it is still down almost 9% for the year on fears that the Trump administration’s chaotic trade policies will push the U.S. economy into recession.

This puts the focus squarely on the meeting in London this session between U.S. representatives, led by Treasury Secretary Scott Bessent, and their Chinese equivalents, expected to be headed up by China’s Vice Premier He Lifeng. 

The agenda will focus on rolling back tariffs, adjusting export rules on tech and critical minerals, and defining broader trade frameworks, easing the trade tensions between the two economic superpowers.

However, the forex markers remained cautious as traders await actual outcomes rather than just talk.

“A meeting in London today between U.S. and Chinese officials should in theory be good news for the dollar,” said analysts at ING, in a note. “Presumably, both sides would not be meeting if they felt they couldn’t put a deal together. In focus here will be whether the deal made in Geneva last month can be made permanent, and that the threat of 100%+ tariffs does not return.”

Euro helped by hawkish ECB

In Europe, EUR/USD traded 0.2% higher to 1.1422, as markets continued to digest the European Central Bank’s comments after last week’s interest rate cut.

The ECB cut interest rates by a quarter point on Thursday, as widely expected, but President Christine Lagarde also suggested that the easing cycle was nearing its conclusion. 

“Lagarde painted a picture of eurozone growth even in the face of global uncertainty,” said ING. “The market continues to price just one more ECB rate cut, but not until December this year. And we suspect more focus on German fiscal stimulus when a new budget is released later this month should keep the euro supported.”

GBP/USD gained 0.3% to 1.3567, continuing to trade around a three-year peak as the dollar weakens.

“As a major reserve currency, sterling in theory should benefit from any de-dollarisation flows. And with one-week deposit rates at 4.25%, sterling is also seen as an attractive dollar alternative during quiet market conditions, like now,” ING added.

Yen gains after Japanese GDP release

In Asia, USD/JPY traded 0.5% lower to 144.12, after data on Monday showed that Japan’s economy contracted slightly less than initially estimated in the first quarter amid stagnant consumer spending and falling exports due to tariff-induced trade woes.

USD/CNY traded 0.1% lower to 7.1834, after the Chinese consumer price index eased for a fourth straight month in May, while producer inflation fell by its sharpest pace in nearly two years.

Other data showed that the country’s export growth missed expectations as high U.S. trade tariffs dented overseas demand, although its trade balance grew more than expected in May due to a decline in imports.