Reports show that the US and China have agreed on issues like TikTok, soybean deals, and tariffs. A meeting between President Trump and President Xi on Thursday might make these agreements official and could push back the steep tariffs set for April. This discussion may also influence China’s rules on rare earth exports.

Global Stock Market Impact

Global stock markets are rising as optimism grows for a possible extension of the US-China trade truce. The Australian and New Zealand dollars are leading the G10 currency markets thanks to this positive outlook. In the US, the Trump-Xi meeting may affect the dollar’s strength, which is already under pressure from expected rate cuts in major economies. The ongoing government shutdown is limiting key economic data, which impacts GDP reporting. The US dollar index is currently strong at around 99, influenced by local political events in Japan and a weaker euro. If the upcoming German Ifo survey is positive, this could lower the dollar index to 98.50. Markets are reacting sensitively to economic reports and global events. With the Trump-Xi meeting approaching this Thursday, a positive atmosphere is developing. A possible agreement to delay tariffs is encouraging a risk-on sentiment, particularly benefiting the Australian and New Zealand dollars. Since US exports to China have not yet returned to their pre-trade-war level of over $130 billion, any formal agreement could significantly boost trade volumes and market confidence.

Federal Reserve’s Impact on the Dollar

The Federal Reserve is also expected to cut rates by 25 basis points this week, which could further weaken the dollar. Fed funds futures are predicting an 88% chance of this happening, especially after the softer September CPI data showed a 3.1% increase year-over-year. The dollar’s strength is unlikely unless Chair Powell surprises the market with a more hawkish announcement. We need to consider the ongoing government shutdown, which adds uncertainty and means we lack key data like Q3 GDP. This situation suggests buying volatility, perhaps using VIX calls or SPX straddles, especially as we approach November 15th, when military pay could be affected. The previous 35-day shutdown in 2018-2019 reduced quarterly GDP by about 0.2%, so a lengthy shutdown could quickly dampen the current positive sentiment. Taking all these factors into account, we predict a weaker U.S. dollar in the coming weeks. Options strategies targeting a move in the DXY to around the 98.50 level seem wise since the index is currently up near 99. A better-than-expected German Ifo Business Climate reading today could be the first sign for this movement, possibly boosting the EUR/USD pair. Create your live VT Markets account and start trading now.

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