Market wrap: The trade war fog is starting to lift

Market wrap

Global equities are extending their winning streak to a fourth straight session — and this one’s got real legs. It’s not just the Fed’s rate-cut flirtation driving the tape higher — Asia's catching tailwinds from a rare double-dose of optimism: a cooler trade war front and Federal Reserve rate cut relief talk.

U.S. rate-cut chatter lit the initial spark. Several Fed officials cracked open the policy door, floating the idea of moving earlier than expected if economic data continues to wobble — or if Trump’s tariff gambit starts hitting jobs. That alone gave bulls the green light to press risk higher.

But this rally isn’t just built on dovish dreams — the trade war fog is starting to lift.

China is reportedly mulling a suspension of its 125% retaliatory tariffs on select U.S. imports — a clear olive branch that’s helping risk appetite regain traction. Treasury Secretary Scott Bessent said a “framework of understanding” with China could be inked as early as next week. Meanwhile, Japan’s Nikkei surged up to 2% after U.S.-Japan trade discussions delivered constructive headlines, with both sides leaning toward a deal without major currency tension.

The rally isn’t just about the Fed blinking. Asia is waking up to a possible ceasefire in the trade war, and that’s adding fuel to the fire. For the first time in weeks, traders have something real to price into the tape — not just hopium. And if the flow keeps follow

Forex markets

The battered dollar is bouncing back to life, not because of rates or fundamentals, but because the trade war narrative has done a sharp 180. Three straight sessions of soft-sell diplomacy from Washington and some light cheerleading from Asia have flipped the script. The dollar is still the highest-octane G10 trade war proxy, and every headline hinting at tariff détente gives it another reason to punch higher.

Let’s rewind. Not long ago, dollar bears were pounding the table — pricing in a Fed that had lost the plot, a market losing faith in U.S. policy credibility, and foreign capital quietly heading for the exits. That’s not paranoia — it was showing up in the price action. But this week, sentiment hit a reset. Equities are lifting, Treasury yields are stabilizing despite a soft 7-year auction, and the White House has cooled the trade war drums. That’s more than just relief — it’s the first sign of risk appetite putting the dollar back in demand.

Make no mistake: this is still a fragile bounce. The market is on a hair trigger — ready to dump dollars again if Trump flips the tone or throws a jab at Powell. Everyone’s watching for confirmation: is this a real turn in trade tone, or just another calm before the next tweetstorm?

For now, though, the dollar’s finding its legs. Treasury Secretary Bessent’s recent remarks weren’t random — they were a shot across the bow. The administration sees the damage that a confidence crisis in the greenback can trigger, and they’re stepping in with just enough verbal grease to keep the gears turning. Combine that with some sturdy U.S. data and fading fear of a Fed power grab, and it’s enough to shift positioning off the extremes.

Meanwhile, euro bulls are starting to sweat as the 1.1300 trap comes into view. The dream scenario — a full-scale U.S. meltdown — just hasn’t played out. Trump’s public assurance that Powell’s job is safe short-circuited the “Fed in crisis” narrative, and with U.S. equities firming and the dollar bouncing back, EUR/USD longs are now running on fumes.

Positioning is heavy, the upside catalysts are stale, and momentum’s fading fast. Without a fresh wave of dollar-bearish headlines or a crack in U.S. data, 1.1300 could turn from a breakout to a trap door in a heartbeat.

Over here in Asia, the dollar continues to defy. Tokyo CPI surprised to the upside, nudging BoJ expectations forward — but USDJPY still rose. That’s a clear signal: risk-on appetite is outweighing any yen demand. Markets aren’t bracing for currency fireworks in the Japan-U.S. trade deal, and Tokyo’s baby steps toward normalization aren’t scaring off dollar bulls yet.

Bottom line? The dollar’s still on a short leash, but this week proves it’s not ready for the obituary column just yet. If the White House stays on message, if stocks keep climbing the wall of worry, and if Treasury keeps managing the optics — the dollar bounce has room to stretch. It’s not about faith — it’s about flow. And right now, the flows are turning.

Gold markets

We already know the drill — gold’s bid shows up early, and it’s no accident that the tape starts moving during Shanghai hours. This isn’t just a timezone artifact — it’s a signal. That early pop reflects where the marginal buyer lives: Chinese retail, sovereign desks, and a central bank quietly stockpiling the only reserve asset that doesn’t come with a counterparty. Gold is China’s pressure valve — a hard asset hedge against a softening yuan, capital controls, and growing geopolitical risk.

But today’s rally? It’s gone global.

Gold’s catching a fresh leg higher in the Thursday U.S. session, this time riding the coattails of a full-blown rate-cut fever. Several Fed officials cracked the door open, and the market kicked it wide. Cleveland Fed’s Beth Hammack hinted at a possible June cut if the data lines up, while Governor Waller added fuel to the fire by floating rate relief if Trump’s tariffs start cutting into U.S. jobs.