U.S. Dollar Falls and Stocks Rise After Mild Inflation Data and Trade War Pause

The U.S. dollar dropped and stock futures went up on Tuesday after new data showed that U.S. consumer prices increased less than expected in April. This came shortly after President Donald Trump announced new tariffs that had caused major disruptions in global trade and markets.

On Monday, the U.S. and China agreed to pause their trade war for 90 days. Both countries will lower some of their tariffs and remove other trade restrictions while they try to reach a more lasting deal.

This agreement gave investors more confidence, encouraging them to buy stocks, cryptocurrencies, and commodities. Tuesday’s lower-than-expected inflation data added to the positive mood.

What the Inflation Report Said

The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI), a key measure of inflation, rose by 0.2% in April compared to March. On a yearly basis, prices increased by 2.3%, down slightly from 2.4% in March.

Experts surveyed by Reuters had expected a 0.3% monthly increase and a 2.4% yearly increase.

After the report, the U.S. dollar lost more ground against other major currencies. The euro rose 0.4% to reach $1.113.

Stock Market Reaction

Futures for the S&P 500 and Nasdaq rose 0.2% to 0.3%, pointing to a stronger start on Wall Street. On Monday, the S&P 500 had already jumped 3.3% thanks to the positive news about U.S.-China trade talks.

Peter Cardillo, chief market economist at Spartan Capital in New York, said, “The numbers were slightly higher than I expected, but 2.3% inflation year-over-year is still acceptable. It suggests the Federal Reserve is right to be cautious.”

Tariff Changes

After trade talks in Geneva over the weekend, the U.S. agreed to lower tariffs on Chinese imports from 145% to 30%. China will also reduce tariffs on American goods from 125% to 10%.

Because of this trade truce, traders have reduced their expectations for how much the Federal Reserve will cut interest rates this year. They now expect the Fed to lower rates by 56 basis points, down from earlier predictions of more than 100 basis points in April.

Cardillo added, “Unless we see more real progress in the trade talks by June, a rate cut by then is still uncertain.”

Outlook Still Uncertain

Some economists and analysts warn that the 90-day trade pause doesn’t fix the bigger issues. Christopher Hodge, chief U.S. economist at Natixis, said, “Even with this pause, tariffs are still very high and could hurt U.S. economic growth.”

Fitch Ratings estimates that the average U.S. tariff rate is now 13.1%. That’s a big drop from 22.8% before the agreement, but still far above the 2.3% level at the end of 2024. In fact, it’s the highest rate since 1941.

Other Market Updates

• U.S. Treasury Bonds: The yield on the 10-year Treasury note fell slightly, down 1.4 basis points to 4.443%, after hitting a one-month high on Monday.

• Oil Prices: Oil rose 0.9% to $65.48 a barrel, following Monday’s 1.2% gain, pushing prices to a two-week high above $66.

• Gold Prices: Gold increased 0.4% to $3,246 an ounce, recovering slightly after dropping 2% the day before.

Overall, investors were feeling more optimistic thanks to cooling inflation and hopes that the U.S.-China trade tensions might ease. But many experts say the road ahead is still full of challenges.