The dollar fell and U.S. stock futures rose on Tuesday after data showed U.S. consumer inflation picked up less than expected in April, when President Donald Trump unveiled a raft of tariffs that have wreaked havoc on global supply chains and markets.
The U.S. and China on Monday said they would pause their trade war for 90 days, bringing down reciprocal duties and removing other measures while they negotiate a more permanent arrangement.
The agreement has reignited investor appetite for stocks, cryptocurrencies and commodities and Tuesday's inflation figures helped power that move.
The Bureau of Labor Statistics said its consumer price index (CPI) rose 0.2% in April from March, bringing the annual increase to 2.3% from 2.4%.
Economists polled by Reuters had forecast a monthly rise of 0.3% and a yearly rise of 2.4%.
The dollar extended some losses against a basket of currencies, as the euro rose by as much as 0.4% on the day to a session high of $1.113.
Futures on the S&P 500 and Nasdaq rose 0.2-0.3% on the day, suggesting a modestly higher start on Wall Street, where the S&P rose 3.3% on Monday after the U.S./China trade news.
"The numbers were a little higher than I was looking for, but ... year-to-year, 2.3%, that's not bad," Peter Cardillo, chief market economist at Spartan Capital in New York, said.
"The report basically indicates that the Fed needs to be very cautious and that the stand that they have taken is probably the right course, for now."
Following the Geneva talks at the weekend, the U.S. said it will cut tariffs imposed on Chinese imports to 30% from 145% while China said it would cut duties on U.S. imports to 10% from 125%.
The shift in U.S.-China trade relations has led traders to reduce their expectations for Federal Reserve rate cuts, as they believe policymakers may have more leeway to lower rates if the risks to inflation abate.
Traders are now pricing in 56 basis points of cuts this year, down from forecasts for over 100 basis points in April, when fears about the impact of Trump's tariffs were at their worst.
"The Fed has embarked on what seems to be the right course and unless there's any real movements in terms of trade war ending by June, it looks like a June rate cut remains in question," Cardillo said.
Economists, fund managers and analysts have said that while the 90-day pause is welcome, it has not changed the bigger picture.
"When all is said and done, tariffs will still be dramatically higher and will weigh on U.S. growth," Christopher Hodge, chief U.S. economist at Natixis, said.
Ratings agency Fitch estimates the U.S. effective tariff rate is now 13.1%, a notable decline from 22.8% prior to the agreement but still at levels unseen since 1941 and above the 2.3% that prevailed at the end of 2024.
Meanwhile, U.S. Treasury yields edged below Monday's one-month highs after the inflation numbers. The benchmark 10-year yield was last down 1.4 basis points on the day at 4.443%.
Oil rose 0.9% to $65.48 a barrel, extending Monday's 1.2% on Monday rally to a two-week high above $66 a barrel. Gold rose 0.4% to $3,246 an ounce, having fallen 2% on Monday.
The U.S. and China on Monday said they would pause their trade war for 90 days, bringing down reciprocal duties and removing other measures while they negotiate a more permanent arrangement.
The agreement has reignited investor appetite for stocks, cryptocurrencies and commodities and Tuesday's inflation figures helped power that move.
The Bureau of Labor Statistics said its consumer price index (CPI) rose 0.2% in April from March, bringing the annual increase to 2.3% from 2.4%.
Economists polled by Reuters had forecast a monthly rise of 0.3% and a yearly rise of 2.4%.
The dollar extended some losses against a basket of currencies, as the euro rose by as much as 0.4% on the day to a session high of $1.113.
Futures on the S&P 500 and Nasdaq rose 0.2-0.3% on the day, suggesting a modestly higher start on Wall Street, where the S&P rose 3.3% on Monday after the U.S./China trade news.
"The numbers were a little higher than I was looking for, but ... year-to-year, 2.3%, that's not bad," Peter Cardillo, chief market economist at Spartan Capital in New York, said.
"The report basically indicates that the Fed needs to be very cautious and that the stand that they have taken is probably the right course, for now."
Following the Geneva talks at the weekend, the U.S. said it will cut tariffs imposed on Chinese imports to 30% from 145% while China said it would cut duties on U.S. imports to 10% from 125%.
The shift in U.S.-China trade relations has led traders to reduce their expectations for Federal Reserve rate cuts, as they believe policymakers may have more leeway to lower rates if the risks to inflation abate.
Traders are now pricing in 56 basis points of cuts this year, down from forecasts for over 100 basis points in April, when fears about the impact of Trump's tariffs were at their worst.
"The Fed has embarked on what seems to be the right course and unless there's any real movements in terms of trade war ending by June, it looks like a June rate cut remains in question," Cardillo said.
Economists, fund managers and analysts have said that while the 90-day pause is welcome, it has not changed the bigger picture.
"When all is said and done, tariffs will still be dramatically higher and will weigh on U.S. growth," Christopher Hodge, chief U.S. economist at Natixis, said.
Ratings agency Fitch estimates the U.S. effective tariff rate is now 13.1%, a notable decline from 22.8% prior to the agreement but still at levels unseen since 1941 and above the 2.3% that prevailed at the end of 2024.
Meanwhile, U.S. Treasury yields edged below Monday's one-month highs after the inflation numbers. The benchmark 10-year yield was last down 1.4 basis points on the day at 4.443%.
Oil rose 0.9% to $65.48 a barrel, extending Monday's 1.2% on Monday rally to a two-week high above $66 a barrel. Gold rose 0.4% to $3,246 an ounce, having fallen 2% on Monday.
