Chart of the day: USDIDX (12.05.2025)

The U.S. Dollar Index gained nearly 1.1% at its peak today, reflecting market relief over new trade arrangements between China and the United States. The trade war has effectively been suspended for 90 days, but the open question remains: will businesses believe in the end of uncertainty, and will investors trust the stability of U.S. policy?

Normalization of trade relations may help the dollar return to pre-Liberation Day levels. Source: xStation5

Markets closed on Friday filled with tension ahead of the first round of trade negotiations between China and the U.S. The weekend brought initial reports of positive developments in the Geneva talks. However, optimism at the start of today’s session was fairly cautious—comments about a “good start” were still insufficient in the face of over 100% tariffs between the world’s two largest economies.

Bullish sentiment broke loose between 8:00 and 9:00 AM. During a joint press conference, U.S. Treasury Secretary Scott Bessent announced a reduction in American tariffs from 145% to 30%, in response to a nearly symmetrical move by China (from 125% to 10%). The agreement is set to take effect this coming Wednesday and will remain in force for 90 days.

While the trade truce between China and the U.S. doesn’t resolve long-term uncertainty, it provides businesses with a much-needed window to recalibrate their strategies. The tariff cuts turned out to be significantly larger than expected (pre-weekend expectations were in the 60–80% range), which could help alleviate concerns about supply chains, pricing pressure, and market access.

For the dollar, this could mean a return to levels seen before Liberation Day. In recent weeks, uncertainty over President Trump’s economic policy has triggered a “Sell USA” sentiment, making both equity and bond markets less attractive. Normalizing trade relations could ease the trust crisis around the dollar; however, the U.S. president’s unpredictability will likely prompt investors to diversify their portfolios across regions.

The EURUSD exchange rate clearly turned back toward the yield spread between 2-year German and U.S. bonds.Gradually fading trade uncertainty is shifting focus back to monetary factors—namely, the interest rate differential between the Eurozone and the U.S. Source: XTB Research

The relative improvement in trade conditions has caused the euro, yen, and franc to lose their excess gains against the dollar.Source: XTB Research