The dollar jumped and government bonds sold off as markets reacted to a de-escalation in the trade war between China and the US, which agreed to temporarily lower some tariffs for 90 days.
A gauge of dollar strength rose as much as 0.8% and the yen, a traditional haven, plunged as progress in talks stoked risk appetite across asset classes. The US 10-year yield climbed six basis points to 4.43%, its highest in nearly a month.
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It's a major potential pivot point for markets, which have been roiled by US President Donald Trump's attempts to rewire global trade. He targeted China with particularly punitive tariffs, sparking a trade war and fears of a recession.
“This is positive for G10 risk especially the Antipodean currencies and the US dollar,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole SA. “Easing US growth fears should further help restore market confidence in the USD-denominated assets.”
After weekend talks in Geneva, the US and China issued a joint statement indicating that they would temporarily lower tariffs on each other's products. It buys the world's two largest economies three more months to resolve their differences.
The Swiss franc and euro also plunged against the greenback following the announcement. The common currency, which had emerged as a haven amid the rout in US assets, fell 1.2%, putting it on track for its worst day this year.
Money markets trimmed wagers on Fed interest-rate cuts with swaps now favoring a quarter-point reduction in September compared to July last week, reflecting easing concern over the country's economic outlook.
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