The dollar index (DXY00) Monday rallied sharply to a 1-month high and finished up by +1.48%.  The dollar surged Monday after the US and China agreed to temporarily lower tariffs on each other's products.  Also, Monday's jump in the 10-year T-note yield to a 4-week high strengthened the dollar's interest rate differentials.  In addition, Monday's soaring stock market and easing trade tensions reduce the chances the Fed will cut interest rates, a supportive factor for the dollar.  The dollar fell back from its best levels after Fed Governor Kugler said that US tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction to tariffs on China.

The US and China agreed to temporarily lower tariffs on each other's products for three months, with the US reducing its tariffs on China from 145% to 30% and China reducing its duties from 125% to 10%.  Treasury Secretary Bessent Said that neither nation wants to "decouple" and that further talks might lead to "purchasing agreements" by China.

Fed Governor Kugler said Monday that US tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction to tariffs on China. She added that there could also be "significant effects" on productivity since businesses may cut back on investment and make other less efficient moves to navigate the tariffs.

The markets are discounting the chances at 8% for a -25 bp rate cut after the June 17-18 FOMC meeting.

EUR/USD (^EURUSD) Monday sank to a 1-month low and finished sharply lower by -1.40%.  Monday's sharp rally in the dollar index to a 1-month high fueled long liquidation in the euro.  Losses in the euro accelerated on Monday when ECB Governing Council member Kazaks said he sees a reason for another ECB interest rate cut.

ECB Governing Council member Kazaks said, "The financial markets at the moment are expecting another ECB rate cut in June, and while looking at today's data, I see that is a pretty possible step."

Swaps are discounting the chances at 83% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

USD/JPY (^USDJPY) Monday rose by +2.01%.  The yen fell sharply Monday to a 5-week low against the dollar on reduced safe-haven demand after the US and China agreed to reduce tariffs on each other's goods.  Also, an easing of geopolitical tensions has curbed safe-haven demand for the yen after India and Pakistan agreed to an immediate ceasefire, and Ukraine President Zelenskiy said he would travel to Istanbul on Thursday for direct negotiations with Russian President Putin.  In addition, Monday's economic news that showed the Japan Apr eco watchers outlook survey fell more than expected to a 4-year low is bearish for the yen. Finally, Monday's surge in T-note yields is undercutting the yen.

The Japan Apr eco watchers outlook survey fell -2.5 to a 4-year low of 42.7, weaker than expectations of 44.6.

June gold (GCM25) Monday closed down -116.00 (-3.47%), and July silver (SIN25) closed down -0.290 (-0.88%).  Precious metals on Monday settled sharply lower, with gold and silver falling to 1-week lows.  Monday's surge in the dollar index to a 1-month high hammered precious metals prices. Also, easing trade tensions sparked a rally in stocks that prompted long liquidation in precious metals after China and the US agreed to lower tariffs on each other's goods.  In addition, an easing of global geopolitical risks is bearish for precious metals after India and Pakistan agreed to an immediate ceasefire, and Ukraine President Zelenskiy said he would travel to Istanbul on Thursday for direct negotiations with Russian President Putin.  Finally, Monday's surge in global bond yields is undercutting precious metals prices.   

Losses in silver prices on Monday were limited as the easing of trade tensions between the US and China supported economic growth prospects and was bullish for industrial metals demand. Also, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues and as Israel launched an airstrike on Houthi rebels in Yemen.