US Dollar Weakens as Risk Assets Rise on Trade Deal Optimism

US Dollar Softens as Risk Assets Rally on US-Japan Trade Agreement

Risk sentiment surged across global markets on Wednesday after President Trump approved a trade agreement with Japan, reducing tariffs and boosting confidence in global trade prospects.

Equities & Commodities Surge on “Win-Win” Trade Deal

Global equity markets moved higher, buoyed by news that US duties on Japanese products, including autos, will be capped at 15%, avoiding the steeper 25%+ tariffs previously threatened. Japan, in return, is reportedly set to invest $550 billion in the US, purchase US aircraft and rice, and potentially create a sovereign wealth fund under US guidance — a claim that has raised eyebrows among market watchers.

Also read: What the US-Japan Trade Deal Means for the Global Economy

Industrial commodities such as metals extended gains, favoring currencies like the Australian Dollar (AUD), Brazilian Real (BRL), and South African Rand (ZAR). These assets are increasingly viewed as hedges against inflation and uncertainty surrounding the Federal Reserve’s future leadership and monetary easing pace.

US Dollar Sees Continued Pressure

The US Dollar Index (DXY) has remained soft, driven by a combination of lower US yields, investor rotation into emerging markets, and repositioning towards Europe amid global recovery hopes.

"The soft USD price action may reflect investor reallocation out of US markets and into global growth plays," analysts noted.

Traders now look to the June US existing home sales report, which may provide further clues on the health of the housing market. Some see modest upside risk, driven by a recent bounce in mortgage applications. If the data surprises positively, the DXY could retrace towards 98.

Key Takeaways

• US Dollar weakens amid trade deal optimism and risk-on sentiment
• Industrial metals rally boosts commodity-linked currencies
• Market attention shifts to Fed uncertainty and US housing data
• DXY may rebound if upcoming data surprises to the upside