GBP/USD hovered near 1.3194, following Sunday's announcement regarding US-China trade talks. A joint statement followed high-level trade negotiations over the weekend in Geneva, announcing that the US will suspend 24 percentage points of its tariff rate on Chinese goods for 90 days. US Treasury Secretary Scott Bessent highlighted the importance of this agreement, noting the pause on tariff escalation and a significant 115% reciprocal tariff reduction. He stated that both parties maintained a strong relationship while focusing on national interests. On Sunday, US President Trump said, "I will be signing one of the most consequential Executive Orders in our Country's history. Prescription drug and pharmaceutical prices will be REDUCED, almost immediately, by 30% to 80%. I will be instituting a MOST FAVOURED NATION'S POLICY whereby the United States will pay the same price as the Nation that pays the lowest price anywhere in the world." Statements from Bessent, US Trade Representative Jamieson Greer, and China's Vice Commerce Minister Li Chenggang have indicated that both countries have achieved "substantial progress" in crucial trade negotiations in Geneva over the weekend. Additionally, slowing concerns over the US-China trade war will likely lower heightened US consumer inflation expectations, creating an opportunity for the Federal Reserve (Fed) to restart its monetary policy easing cycle, which was put on hold in January.

Last Thursday, the US and the UK finalised a limited trade agreement that preserves Trump's 10% tariffs on British exports while facilitating market access for both nations. Following this, the pound experienced a slight increase after the Bank of England (BoE) decided to maintain its "gradual and cautious" monetary policy approach. On Friday, Pill explained that his choice stemmed from the belief that persistent domestic pressures could elevate inflation, as reported by Reuters. He also minimised the effects of global trade risks on the UK economy, stating, "Not seeing a dramatic shift in the UK economy after tariff announcements." On Monday, Bank of England (BoE) Deputy Governor for Monetary Policy, Clare Lombardelli, noted that "caution remains appropriate" regarding the policy outlook, adding that "Wage growth is still too high for on-target inflation. Further gradual disinflation progress and trade developments made a 25 basis points (bps) rate cut appropriate."

Investors will observe the speeches from BoE MPC members and influential Fed officials for fresh insights on central bank policies and the GBP/USD exchange rate.

USD/CAD Buoyed After Canadian Unemployment Data

USD/CAD edged higher near 1.3959, following the release of the Canadian labour market data. Statistics Canada reported on Friday that Canada's unemployment rate rose to 6.9% in April, up from 6.7% in March. This figure exceeded the market's expectation of 6.8%. During this time, the Net Change in Employment increased by 7.4K, marking a significant improvement compared to the 32.6K drop seen in March. Additionally, the report revealed that the Participation Rate increased to 65.3% from 65.2%, and Average Hourly Wages grew by 3.5% year-over-year, which aligns with March's rise. Despite a stronger-than-expected job gain of 7,400 in April, the unemployment rate climbed to 6.9%, marking the highest level since November, reflecting the weaknesses following the ongoing trade uncertainties. Moreover, mixed labour market data coupled with shifting market sentiment around the Bank of Canada's (BoC) policy stance will continue undermining the Canadian Dollar (CAD). Canada's new Prime Minister, Mark Carney, stated that he and the Canadian team responsible for cross-border negotiations are fully prepared to start meetings with their US counterparts, specifically to discuss trade issues with President Donald Trump. Rising crude oil prices could influence the commodity-linked loonie's price in the upcoming sessions.

On the other hand, an improved global trade mood stemmed from the optimism around the US-China trade talks, which supported the greenback. A joint statement was released following high-level trade negotiations that took place over the weekend in Geneva, Switzerland. The statement announced that the US will suspend 24 percentage points of its tariff rate on Chinese goods for an initial period of 90 days. During a scheduled briefing, US Treasury Secretary Scott Bessent underscored the importance of this agreement, mentioning the 90-day pause on tariff escalation and a significant 115% reciprocal tariff reduction. Bessent remarked that both parties maintained a strong personal rapport while keeping their focus on national interests. On Sunday, US President Trump commented, "I will be signing one of the most consequential Executive Orders in our Country's history. Prescription drug and pharmaceutical prices will be REDUCED, almost immediately, by 30% to 80%. I will be instituting a MOST FAVOURED NATION'S POLICY whereby the United States will pay the same price as the Nation that pays the lowest price anywhere in the world."

In today's session, optimism around the ongoing US-China trade talks and oil price dynamics will determine the USD/CAD's movements.

EUR/JPY Climbs due to Weaker JPY

EUR/JPY advanced near 164.57, as optimism around the US-China trade deal dampened the demand for safe-haven assets, pressuring the Japanese Yen (JPY). The stronger-than-expected rise in personal spending for March, along with weaker real wages for the third straight month, may result in rising inflationary pressures. In March, Japan's household spending rose 2.1% year-on-year, recovering from a 0.5% drop in February and surpassing the 0.2% market expectation. This is the highest growth since December, driven by rising utility costs from colder weather. Meanwhile, Japan's labour cash earnings increased by 2.1% YoY in March, down from February's 2.7% and below the expected 2.3%. Additionally, real wages, adjusted for inflation, fell 2.1%, marking the third consecutive month of decline. Japan's non-seasonally adjusted current account surplus rose to JPY 3,678.1 billion in March, up from JPY 3,447.8 billion a year earlier and largely in line with forecasts. The trade balance - BOP basis reported that the goods account surplus widened to JPY 516.5 billion from JPY 463.5 billion, driven by a 1.8% year-on-year rise in exports, which outpaced the 1.3% increase in imports. The current conditions index of the Economy Watchers' Survey dropped to 42.6 in April from 45.1 in March, marking the lowest since February 2022.

On the euro's front, speculations about the European Central Bank (ECB) continuing to lower rates due to declining inflation are weighing on the shared currency. ECB official Olli Rehn suggested last week that the ECB might consider reducing interest rates at its next meeting, depending on whether upcoming forecasts support an ongoing disinflation trend and slowing economic growth. Investors are now awaiting Washington's response to the European Commission's proposed countermeasures regarding US tariffs for further insights into how ongoing trade conflicts will impact the euro. On Thursday, the Commission launched a public consultation outlining potential tariffs on up to €95 billion in US imports if trade negotiations collapse.

With a few key releases on the Eurozone calendar today, broader market sentiment around the US-China trade deal will be a key driver for the EUR/JPY exchange rate.

AUD/USD Sinks Following US-China Trade Talks

AUD/USD lost ground near 0.6403, reacting to the optimistic market mood around the positive developments in US-China trade negotiations. A joint statement from high-level talks in Geneva confirmed that the US would suspend 24% of its tariff rate on Chinese goods for 90 days. US Treasury Secretary Scott Bessent highlighted the 90-day halt in tariff escalations and a 115% reciprocal tariff reduction. He emphasised constructive rapport and focused on advancing national interests. US Trade Representative Jamieson Greer commended the mutual respect and understanding established during the discussions. He recognised that while both sides are dedicated to the 90-day pause, challenges such as the fentanyl issue remain unresolved. On the data front, China's trade surplus decreased to CNY 689.99 billion in April, down from CNY 736.72 billion in March. Exports grew 9.3% year-on-year, a decline from March's 13.5% increase, while imports increased by 0.8% YoY, bouncing back from a previous decline of -3.5%. Measured in US dollars (USD), the trade surplus reached $96.18 billion, exceeding the $89 billion forecast but lower than March's $102.63 billion. Export growth slowed to 8.1% YoY from 12.4%, yet surpassed the anticipated 1.9%. Imports fell slightly by 0.2% YoY, better than the expected -5.9% and the previous -4.3%. China's trade surplus with the US decreased to $20.46 billion in April, down from $27.6 billion in March.

On the domestic front, the seasonally adjusted AiG Industry Index rose by 7.2 points to -15 in March, suggesting a slight recovery despite persistent challenges in the industrial sector. Factors such as global trade uncertainty, currency fluctuations, and the upcoming federal election continue to impact activity. Concurrently, the AiG Manufacturing Purchasing Managers' Index (PMI) increased by 3.0 points to -26.7, up from -29.7 the previous month. Additionally, market sentiment suggests that the Reserve Bank of Australia (RBA) may favour a policy easing strategy by lowering the cash rate by 25 bps to 3.85% later this month, which could affect the value of the Aussie dollar.

Conversely, the Federal Reserve's decision to maintain the interest rate and officials' warning about stagflation risks have increased uncertainty regarding the economic outlook. On Friday, John Williams, President of the New York Federal Reserve Bank, stated, "Inflation will come back to 2%." He further noted, "It is important to have well-anchored inflation expectations. Growth is expected to slow significantly, with both inflation and unemployment rising." Additionally, Federal Reserve Governor Adriana Kugler indicated a moderately restrictive policy stance, given the unpredictability of tariff policy outcomes. He also warned, "There could be a slowdown in the economy in the near term."

Investors will pay attention to key Australian economic releases, including May's Westpac Consumer Confidence and April's NAB Business Conditions, along with upcoming US data, with consumer inflation figures due Tuesday, followed by Retail Sales and Producer Price Index data for fresh insights on the AUD/USD exchange rate.

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