The US dollar held steady on Tuesday as talks between Beijing and Washington continued for a second day, fueling investor hopes for a easing of trade tensions. Meanwhile, the British pound fell as jobs data showed weakness in the UK labour market.
Officials from the world's two largest economies met in London to ease a dispute that has now widened from tariffs to restrictions on rare earths ().
"Unlike the Geneva talks (in May) which yielded easy wins on tariff cuts, the London talks now face more complex issues such as export controls on chips, rare earths and student visas," said Charu Chanana, Chief Investment Strategist at Saxo.
US President Donald Trump and Chinese President Xi Jinping spoke by phone last week, at a critical time for both economies, which are showing signs of stress from Trump's string of tariff orders since January.
The US dollar index, which measures the greenback's strength against a basket of six major currencies, rose less than 0.1% to 98.989, staying close to a six-week low of 98.351 hit last week.
The index has fallen 8.7% this year as investors worried about the impact of tariffs and trade tensions on US economic growth began fleeing American assets and seeking alternatives.
The euro was unchanged at $1.1423, while the Australian dollar, often seen as a marker of risk sentiment, fell 0.1% to $0.6513.
The British pound weakened after UK jobs data showed further weakness in the labour market, which could influence the Bank of England's (BoE) decision on how soon to cut interest rates.
The UK wage growth rate rose by 5.2% in the three months to April, slower than expected, sending the pound down 0.4% against the dollar to $1.3499.
The BoE is due to meet next week and is expected to keep interest rates at current levels. Money market traders now expect a cut of around 48 basis points by the end of the year, up from a forecast of 39 basis points before the data was released.
The Bank of Japan (BoJ) is also expected to keep borrowing costs at current levels at its policy meeting next week. Its governor, Kazuo Ueda, signaled on Tuesday that the next interest rate hike may be delayed.
Risks to Japan’s export-heavy economy from Trump’s tariffs have led markets to delay expectations for the next rate hike. Investors are now looking to Ueda for guidance on when the hike will resume.
The Japanese yen was little changed at 144.50 against the dollar, having gained more than 8.5% this year on safe-haven flows as global markets have been rattled by Trump’s tariffs.
The main focus for investors this week will be the US Consumer Price Index (CPI) report for May due on Wednesday. The report is expected to provide a glimpse into the impact of the tariffs, with investors wary of any spike in inflation ahead of the Federal Reserve’s policy meeting next week.
The US central bank is also expected to keep interest rates unchanged, with traders now projecting nearly two 25 basis point rate cuts by the end of the year.
