Morning Note: Dollar Falls on Trump-Fed Fears; Japan in US Trade Talks; China holds rates

Can Trump Shake the Fed?

The U.S. dollar fell sharply on Monday, today, as investor confidence in the American economy wavered amid growing concerns over President Donald Trump’s intentions to interfere with the Federal Reserve. Market anxiety intensified following comments from White House economic adviser Kevin Hassett, who stated that the administration was still exploring whether it could dismiss Fed Chair Jerome Powell. This came shortly after Trump publicly expressed his desire to remove Powell, saying his departure "cannot come fast enough" and urging the Fed to lower interest rates.

Trump’s aggressive tariff policies and unpredictable trade strategies are compounding these concerns, which have rattled global markets and cast a shadow over the outlook for the U.S. economy. The resulting uncertainty has prompted investors to withdraw capital from U.S. assets, placing further downward pressure on the dollar. As fears mount over political interference in monetary policy and the broader implications for economic stability, the U.S dollar continues to weaken in global currency markets.

(U.S Dollar Index Daily Chart, Source: Trading View)

From a technical analysis perspective, the U.S. Dollar Index has been in a bearish trend since the beginning of February 2025, as indicated by a pattern of lower highs and lower lows. Recently, it broke below the support zone of 99.30 – 99.70 with strong bearish momentum and is now approaching the order block between 97.50 and 97.90. If this order block fails to hold, bearish pressure could potentially drive the index even lower.

Japan Stresses Fairness in U.S. Talks

On Sunday, Japanese Prime Minister Shigeru Ishiba stated that Japan will emphasise "fairness" in any exchange rate discussions with the United States, as bilateral trade negotiations gain global attention amid President Donald Trump’s ongoing tariff campaign. Speaking on a public broadcaster NHK talk show, Ishiba signalled Tokyo's willingness to purchase more U.S. energy and showed openness to addressing U.S. concerns over non-tariff barriers in Japan’s automotive sector.

Despite Japan’s conciliatory tone, Trump has imposed a 24% tariff on Japanese exports to the U.S., although enforcement has been paused until early July. Still, a universal 10% tariff remains in effect, alongside a 25% levy specifically targeting automobiles, a cornerstone of Japan's export-driven economy. These trade measures continue to strain relations and dominate headlines as both nations navigate a delicate economic balancing act.

(USD/JPY Daily Chart, Source: Trading View)

From a technical analysis perspective, the USD/JPY currency pair has been in a bearish trend since mid-January, as indicated by a series of lower highs and lower lows. Recently, it broke below the support zone of 143.00 – 143.50 with strong bearish momentum and is currently retesting the order block between 140.00 and 140.60. If this order block fails to hold, bearish pressure might be potentially driving the pair even lower.

China Holds Rates Steady Again

China kept its benchmark lending rates unchanged on Monday for the sixth consecutive month, aligning with market expectations. The one-year loan prime rate (LPR) remained at 3.1%, while the five-year LPR held steady at 3.6%. The decision follows stronger-than-expected first-quarter GDP data, which has eased immediate pressure for monetary stimulus despite ongoing calls for supportive measures to counterbalance the growing impact of the Sino-U.S. trade conflict.

However, policymakers are treading cautiously. Concerns over a weakening yuan and narrowing interest margins for banks have limited the scope for further easing. While low inflation and persistent external pressures, especially rising tariff risks, support the case for monetary stimulus. Therefore, the People’s Bank of China may delay action until the U.S. Federal Reserve initiates its rate cuts, aiming to preserve currency stability and avoid capital outflows.

(Hang Seng Index Futures, Source: Trading View)

From a technical analysis perspective, the Hang Seng Index futures have rebounded recently from the support zone of 18,900 – 19,100 with bullish momentum. As a result, there is potential for the bullish momentum to push the index higher, possibly retesting the resistance zone of 22,600 – 22,800. If it can close above this zone in the near term, there is potential for a further surge, potentially retesting the resistance zone of 24,800 – 25,000.

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