US Dollar Holds Ground as Traders Sort Through Mixed Trade Signals.
The US Dollar traded modestly higher on Friday as currency markets found themselves navigating a fog of conflicting headlines over potential trade talks between the United States and China. President Donald Trump’s assertion that trade negotiations were ongoing with Beijing pushed the US Dollar Index (DXY) higher in early trading. However, those gains quickly tempered after Chinese officials firmly denied any such talks, branding the rumors as “unfounded.”
While traders attempted to price in the political noise, the DXY remained constrained under 100.00, a key psychological resistance level that has repeatedly capped the Greenback’s upside in recent sessions. Amid low-tier economic data and a muted calendar, Trump’s comments dominated the market narrative, creating a volatile yet directionless trading environment.
Trump Says “Talks Are On” – But Beijing Pushes Back
In an interview on Thursday, President Trump told Reuters that the US and China are actively speaking, even mentioning a phone call with Chinese President Xi Jinping. These remarks further echoed by US Treasury Secretary Scott Bessent, adding weight to the suggestion that backchannel diplomacy might be underway.
However, China’s Foreign Ministry swiftly pushed back, stating that no consultations or negotiations currently happening. A spokesperson said, “I’m not familiar with the specifics, and I refer you to the competent authorities,” when asked about possible exemptions on US imports. The sharp denial rattled markets and cast doubt over the credibility of Washington’s claims.
This isn’t the first time that optimistic White House statements have been met with muted or opposing views from Beijing, but the contrast between the two narratives has rarely been this stark. China also signaled that any future negotiations would be contingent on the US lifting tariffs first, a position that indicates no meaningful progress has been made.
US Dollar Index Faces Key Resistance
The US Dollar Index (DXY) ended the week slightly higher, posting gains of around 0.15%, yet it remains locked in a tight range below the pivotal 100.00 level. This ceiling has been a technical barrier for months, representing not just resistance on the chart but also the limits of bullish momentum amid global uncertainty.
The recent divergence between economic strength in the US and a weaker global outlook had supported the USD, but conflicting trade headlines have led to indecision, sapping the bullish narrative of its vigor.
Technical Overview
- Support: 99.20 (recent swing low), followed by 98.60
- Resistance: 100.00 (psychological), then 100.35 (March high)
- Momentum: Neutral to mildly bullish; RSI near 55 with MACD flattening
Should trade tensions escalate or Beijing retaliate with more aggressive rhetoric, the USD could briefly benefit from safe-haven demand. However, the lack of clarity on the Fed path forward and thin data in the near term may keep bulls in check.
Fed Blackout Period Adds to Market Ambiguity
Adding another layer of complexity is the Federal Reserve’s blackout period ahead of the May 7 FOMC meeting. With no public commentary from Fed officials, traders are left without guidance, and markets are forced to rely on economic indicators and sentiment signals.
According to the CME FedWatch Tool, the odds of a rate cut in May remain low at 6.1%, with an overwhelming 95.3% probability of no change. However, attention is shifting toward June, where markets are pricing in a 61.4% chance of a rate cut, especially if inflation data continues to soften and global uncertainty rises.
The 10-year US Treasury yield, which often moves in tandem with expectations around Fed policy, hovered around 4.27% on Friday. The yield curve remains flat, reflecting investor hesitance amid both domestic inflation concerns and international trade instability.
Consumer Sentiment and Inflation Expectations Offer Limited Direction
Friday’s economic calendar featured the final April reading of the University of Michigan Consumer Sentiment Index, which came in unchanged at 50.8, confirming the preliminary print. Meanwhile, 5-year Consumer Inflation Expectations also stayed steady at 4.4%, slightly elevated but showing no major surprises.
The market took this data in stride, as neither indicator swayed the broader narrative. Both metrics suggest that consumer confidence remains fragile, while inflation expectations remain elevated but manageable, giving the Fed room to maneuver, albeit cautiously.
Global Equities and Risk Sentiment: Walking a Tightrope
The global equity response to Trump’s trade talk optimism was initially positive, but sentiment quickly faded as Chinese denials poured in. US equity futures slipped into negative territory, while European bourses ended marginally higher, showing mild resilience.
The divergence illustrates a market grappling with a familiar pattern—encouraging signals from Washington, followed by firm rejections from Beijing. The result is a lack of follow-through in risk appetite, with traders hedging positions and reducing directional bets ahead of the Fed meeting and further geopolitical clarity.
Forex Market Reaction: Cautious Bid for the USD, Yen and Gold Also Firm
In the FX markets, the US Dollar held firm against risk-sensitive currencies such as the Australian Dollar (AUD) and New Zealand Dollar (NZD), both of which tend to weaken on trade uncertainty. The Japanese Yen (JPY), often a preferred safe-haven, also gained slightly, reflecting the market’s skepticism toward the White House’s trade claims.
Gold (XAU/USD), another barometer of market risk, traded near $2,335, up around 0.3% on the day, confirming the presence of defensive positioning. Meanwhile, EUR/USD hovered just below 1.0700, reflecting Eurozone weakness as well as broad USD resilience.
Outlook: Trade Headlines to Steer Short-Term Direction, June Fed Cut Looms Larger
As markets head into a data-light week with Fed communication on hold, traders will remain highly sensitive to any further clarifications or escalations in US-China trade rhetoric. If Trump’s comments are followed by concrete developments—such as tariff relief or formal negotiation dates—the USD could rally sharply.
However, if China’s stance hardens or retaliatory measures emerge, expect risk-off flows to dominate, with the USD, JPY, and Gold being primary beneficiaries.
Meanwhile, the June FOMC meeting looms large. Traders will scrutinize inflation data, labor reports, and global indicators to gauge whether the Fed will pivot toward rate cuts this summer.
