The US dollar saw mixed performance on Monday, ending a six-day winning streak against the Japanese yen while snapping a three-day losing streak versus the euro, as investors brace for a busy week of major central bank decisions and global trade negotiations.

The Federal Reserve will conclude its two-day policy meeting on Wednesday, followed by interest rate decisions from the European Central Bank (ECB) and the Bank of Japan (BoJ) on Thursday.

President Donald Trump said the United States and China were close to reaching a trade deal, with a meeting between him and Chinese President Xi Jinping scheduled later this week in South Korea.

The Chinese yuan climbed to its strongest level in more than a month, reaching 7.1103 per dollar ahead of the summit. Before the market opened, the People’s Bank of China set the official midpoint rate at 7.0881 per dollar — the strongest since October 15, 2024 — and firmer than Reuters’ forecast of 7.1146.

Focus on the ECB and Bank of Japan

The yen extended its decline for a seventh straight day against the dollar, pressured by expectations of expansionary fiscal and monetary policies under new Prime Minister Sanai Takaichi. Higher oil prices also weighed on the yen and other oil-importing currencies.

After touching 153.26 yen — the highest since October 10 — the dollar later eased 0.05% to 152.80 yen. Analysts expect Japan’s so-called “fiscal premium,” driven by concerns over worsening public finances, to remain high and limit the yen’s recovery potential.

While the ECB is expected to keep policy unchanged this week, markets are turning their attention to the Bank of Japan’s meeting on Thursday.

Bob Savage, head of macro strategy at BNY, said: “There’s a real chance the BoJ could raise interest rates, and any hawkish guidance could spark a sharp move in the yen.”

The central bank is likely to discuss whether current conditions justify resuming rate hikes amid easing recession fears, though political factors may prompt a delay.

Federal Reserve prepares for 25-basis-point rate cut

With markets fully pricing in a 25-basis-point rate cut by the Fed, investors are focused on any signals regarding the potential end of quantitative tightening (QT).

Strategists at Barclays said, “The biggest market catalyst would be an immediate end to QT with hints of upcoming Treasury bill purchases to support bank reserves.”

They added that such policy shifts in the past typically boosted risk assets, which now show a growing positive correlation with the dollar.

Savage of BNY added: “Given tighter funding conditions and shrinking reserves, the Fed is likely to scale back quantitative tightening soon.”

The dollar index was nearly flat at 98.90. The euro traded steady at $1.1628, while gaining to a new record high of 178.13 yen. The Swiss franc also hit a record high of 192.27 yen.

Strong economic data from the eurozone last week reinforced expectations that the ECB will keep rates elevated for longer, lending further support to the common currency.

Currency and commodity moves

The Australian dollar rose 0.4% to $0.6541, supported by improved risk sentiment following progress in US-China trade talks, which lifted demand for higher-yielding assets.

Mujhabeen Zaman, head of FX research at ANZ Bank, said in a podcast: “We expect the US dollar to remain firm in the near term. October and December rate cuts are fully priced in, so any cautious tone from the Fed will likely support the dollar.”

In digital assets, Bitcoin rose 1.8% to $115,441.69, while Ether jumped 4% to $4,227.56.

Ray Attrill, head of FX strategy at National Australia Bank, said: “We’re seeing a positive start to the week for risk sentiment, thanks to upbeat headlines on trade talks over the weekend. That improving risk appetite is putting mild pressure on the US dollar.”

Gold prices fell in European trading on Monday, extending losses for the second consecutive session and moving toward a two-week low. The metal is also at risk of losing its footing above the key psychological level of $4,000 per ounce amid weaker safe-haven demand as trade tensions between the United States and China continue to ease.

The Federal Reserve’s highly anticipated policy meeting begins Tuesday, with a decision due Wednesday. Markets currently expect a 25-basis-point interest rate cut — the second consecutive reduction in US borrowing costs.

Price Overview

• Gold prices fell 1.4% to $4,053.94 from an opening level of $4,112.53, after touching an intraday high of $4,112.53.

• On Friday, gold slipped 0.35%, resuming its losses after a brief recovery from a two-week low of $4,004.56 per ounce.

• The metal lost 3.3% last week, marking its first weekly decline since August, as profit-taking accelerated from an all-time high of $4,381.73 per ounce.

• That decline ended the longest winning streak since June 2020, which had lasted nine consecutive weeks.

Easing Trade Tensions

On Sunday, senior economic officials from the US and China held key talks to outline a framework for a potential new trade agreement expected to be presented to President Donald Trump and Chinese President Xi Jinping in the coming days.

The two leaders are scheduled to meet Thursday in South Korea — their first encounter since the start of Trump’s second term — in what is expected to be a pivotal moment for bilateral relations, particularly concerning global trade and geopolitical stability in Asia.

Federal Reserve Outlook

The Fed’s two-day policy meeting begins Tuesday, with a decision due Wednesday. Markets widely expect a 25-basis-point rate cut, marking the second straight reduction in US rates.

The accompanying policy statement and remarks from Fed Chair Jerome Powell are expected to provide clearer signals on whether additional rate cuts could follow later this year.

According to CME’s FedWatch tool, markets currently price in a 97% probability of a 25-basis-point cut this week and just 3% odds of no change.

Outlook for Gold

Kyle Rodda, an analyst at Capital.com, said: “The potential trade deal between the US and China came as a surprise and was generally seen as a positive development for markets — though, of course, that’s negative for gold.”

He added: “Market momentum has begun to cool, and sentiment is more neutral now. The key reason gold remains supported is the expectation of continued fiscal and monetary easing in the months ahead. If that persists, gold is likely to maintain its upward trend.”

SPDR Holdings

Holdings in the SPDR Gold Trust — the world’s largest gold-backed exchange-traded fund — fell by 5.44 metric tons on Friday to 1,046.93 metric tons, marking the lowest level since October 16.

The euro rose in European trading on Monday against a basket of major currencies, extending gains for the fourth consecutive session against the US dollar, supported by weakness in the greenback ahead of an expected Federal Reserve rate cut later this week.

With renewed inflationary pressures across the eurozone, expectations for a European Central Bank (ECB) rate cut during this week’s meeting have faded. The meeting’s details are expected to offer clearer guidance on the path of European interest rates for the rest of this year and into next.

Price Overview

• EUR/USD rose about 0.2% to $1.1648, up from an opening level of $1.1626, after touching an intraday low of $1.1620.

• The euro closed Friday’s session up around 0.1% against the dollar — its third straight daily gain — recovering further from a two-week low of $1.1577.

• However, the single currency lost 0.25% last week, marking its second weekly decline in the past three weeks as investors favored the US dollar as a safe alternative asset.

US Dollar

The dollar index fell 0.2% on Monday, retreating from a two-week high and reflecting lower demand for the US currency against a basket of global peers.

Beyond profit-taking, the dollar’s pullback comes ahead of an expected 25-basis-point rate cut by the Federal Reserve this week — which would mark the second consecutive reduction in US interest rates.

European Central Bank

• The ECB will hold its policy meeting on Wednesday and Thursday to assess appropriate monetary settings in light of recent eurozone economic developments.

• The bank is widely expected to keep interest rates unchanged at 2.15%, the lowest level since October 2022, for the third consecutive meeting.

• Markets are awaiting further signals about when the ECB may resume its easing cycle and begin cutting rates before the end of the year.

The Japanese yen fell in Asian trading on Monday at the start of the week, extending losses for the seventh consecutive session against the US dollar and hitting a three-week low, weighed down by expectations surrounding the new Prime Minister Sanai Takaichi’s expansionary economic policies.

A summit between Takaichi and US President Donald Trump is scheduled for Tuesday in Tokyo as part of Trump’s official visit to Japan, which begins today. The talks are expected to focus on strengthening economic cooperation between the two nations, following the recent trade agreement that laid the groundwork for a new phase of strategic partnership.

The Bank of Japan is also expected to discuss this week whether conditions are suitable to resume rate hikes as fears of tariff-induced recession ease.

Price Overview

• USD/JPY rose by about 0.3% to 153.18 yen — the highest since October 10 — from an opening level of 152.76 yen, with an intraday low of 152.65 yen.

• The yen ended Friday’s session down 0.2% against the dollar, marking its sixth consecutive daily loss — the longest losing streak since early October.

• For the week, the yen lost about 1.5% versus the dollar, its second weekly decline in three weeks, pressured by expectations of new stimulus measures under Takaichi’s government.

New Stimulus Package

Government sources told Reuters that Prime Minister Sanai Takaichi is preparing an economic stimulus package likely to exceed 13.9 trillion yen ($92 billion) to help households cope with rising prices and inflation. The final size of the package is still being finalized and is expected to be announced early next month.

Takaichi–Trump Summit

President Donald Trump arrived in Japan on Monday and will hold a summit with Prime Minister Takaichi the following day to discuss ways to enhance economic and trade cooperation between the two countries. The meeting is expected to address regional and global issues of mutual concern, including relations with China, Indo-Pacific security, and the future of global supply chains.

The visit underscores both nations’ efforts to strengthen their strategic partnership and promote stability and growth across the Asia-Pacific region.

Bank of Japan

• The Bank of Japan meets Wednesday and Thursday this week to assess monetary policy for the world’s fourth-largest economy, with expectations it will leave interest rates unchanged for the sixth consecutive meeting.

• Policymakers are likely to discuss whether conditions are now suitable to resume gradual rate hikes amid easing recession fears linked to global tariffs.

• Prime Minister Takaichi has urged the central bank to coordinate efforts toward achieving inflation driven more by wage growth rather than cost pressures.