USD Faces Crossroads as US-China Trade Talks Begin Amid Fiscal Risk Caution

Resistance: 99.80–100.00
Support: 99.40–99.50
Outlook: Cautiously bearish unless trade talks yield material progress

Renewed US-China Talks Could Support Dollar Outlook

Since the announcement of President Donald Trump's "Liberation Day" tariffs in early April, the US Dollar (USD) narrative has been tightly linked to trade tensions. Today’s meeting between US and Chinese officials in London presents a pivotal opportunity to cool down trade hostility — and potentially offer support to the USD.

If the talks succeed in building on last month’s Geneva agreement, the US Dollar Index (DXY) could avoid deeper losses, stabilizing around the 99.40–99.50 range.

Risk-On Sentiment, Low Volatility & Carry Trade Appeal

Investors are entering this week with a "glass-half-full" risk appetite, reflected in all-time highs in global equity benchmarks like the MSCI World Index. FX volatility has eased slightly, which continues to encourage carry trade strategies in favor of high-yielding currencies, particularly LatAm pairs offering 9–14% annualized yields.

Bond Market in Focus: Auctions & Budget Risks Loom

However, fiscal risk may reintroduce volatility into USD assets. The US Treasury is set to auction $119 billion in bonds between Tuesday and Thursday:

$58B in 3-year notes
$39B in 10-year bonds
$22B in 30-year bonds

A weaker-than-expected reception to these auctions, or a surprise increase in May’s federal budget deficit (due Wednesday evening), could elevate fiscal risk premiums and pressure the Dollar.