Insights 
VT 
Reports indicate that the US and China have reached consensus on issues such as TikTok, soybean transactions, and tariffs. A meeting between President Trump and President Xi on Thursday may formalise these agreements, potentially delaying steep mutual tariffs planned for April. The discussions could also impact China’s regulation on rare earth exports.
Global Stock Market Impact
Global stock markets are rising on optimism about a potential extension of the US-China trade truce. The Australian and New Zealand dollar are benefiting from this positive sentiment, leading gains in the G10 currency markets.
In the US, the upcoming Trump-Xi meeting could affect the dollar’s position, which faces pressure from anticipated rate cuts across major economies. Despite the US government’s ongoing shutdown, key economic data releases remain scarce, impacting GDP reporting.
The US dollar index remains strong around 99, influenced by local political events in Japan and a weaker euro. A potential uplift for EUR/USD might arise from the German Ifo survey, which could reduce the dollar index to 98.50. The market remains sensitive to economic indicators and geopolitical developments.
With the upcoming Trump-Xi meeting this Thursday, we see a positive mood building. A potential deal delaying tariffs is creating a risk-on environment, benefiting currencies like the Australian and New Zealand dollars. Given that U.S. goods exports to China have struggled to regain their pre-trade-war peak of over $130 billion, any formal agreement could provide a significant boost to volumes and market sentiment.
Federal Reserve’s Impact on the Dollar
The Federal Reserve is also expected to cut rates by 25 basis points this week, which could add pressure to the dollar. Fed funds futures are already pricing in an 88% probability of such a move, especially after the recent September CPI data came in softer at 3.1% year-over-year. This environment makes dollar strength unlikely unless Chair Powell surprises with an unexpectedly hawkish tone.
We must hedge against the ongoing government shutdown, which introduces significant uncertainty and a lack of key data like Q3 GDP. This is a scenario for buying volatility, perhaps through VIX calls or SPX straddles, ahead of the key November 15th date when military pay could be affected. We remember that the 35-day shutdown back in 2018-2019 trimmed quarterly GDP by an estimated 0.2%, so a prolonged event could quickly sour the current positive mood.
With these factors combined, we see a compelling case for a weaker U.S. dollar in the coming weeks. Options strategies targeting a move in the DXY back towards the 98.50 level seem prudent, especially as the index is currently bid up near 99. A better-than-expected German Ifo Business Climate reading today could be the initial catalyst for this move, potentially lifting the EUR/USD pair.
