The U.S. dollar surged on Monday, bolstered by a rise in Treasury yields, as optimism grew over a U.S.-China trade deal that could prevent a recession driven by tariffs. However, Deutsche Bank suggests that the recent trade agreements could benefit the rest of the world more than the U.S., which could cap the dollar’s gains.
The dollar index, which measures the greenback against a basket of currencies, rose 1.6% to 101.78. Treasury yields spiked as investors moved away from safer assets, pushing the 10-year yield above 4.45%.
Over the weekend, China and the U.S. agreed to a 90-day pause on tariffs following talks in Geneva. Deutsche Bank analysts said the deal exceeded expectations and was better than what markets anticipated in March. However, they noted that while the agreement reduces uncertainty, the overall benefits appear to favor global growth rather than strengthening the U.S. dollar.
This trade breakthrough follows a recent U.S.-UK trade agreement, highlighting Washington’s growing focus on international trade. According to Deutsche Bank, the recent developments in global trade favor other economies over the U.S., which could lead to a weaker dollar, especially against currencies sensitive to economic growth.
The U.S.-China deal establishes a ceiling and floor for U.S. tariffs, with China’s rate now set at 30%, significantly lower than expected. The UK’s rate is set at 10%. These developments reduce trade war uncertainty and provide greater clarity.
Additionally, fiscal easing in major economies like Germany, Canada, Australia, Japan, and China’s stimulus measures are improving global growth prospects. However, the outlook for global growth is not without challenges. U.S. fiscal policy remains uncertain, and Deutsche Bank highlighted concerns over how Republican lawmakers will reconcile differing budgetary priorities.
Despite these uncertainties, a less confrontational U.S. administration could ease external financing pressures, potentially supporting dollar inflows. Still, Deutsche Bank suggests that the dollar’s peak strength may have already been reached.
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