The dollar fell against all major currencies on Monday, as cheer over a better-than-expected U.S. jobs report turned to caution ahead of crucial U.S.-China trade talks due in London later in the day.

The talks come at a crucial time for both economies, with China grappling with deflation and trade uncertainty sapping sentiment among U.S. businesses and consumers, prompting investors to reassess the dollar's ​​safe-haven status.

Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer are expected to represent the U.S. at the talks, while Vice Premier He Lifeng is likely to join the Chinese delegation.

"How the trade talks go will certainly be important for overall sentiment," said Kit Juckes, chief currency strategist at Societe Generale. He said Asia-Pacific currencies including the Japanese yen and the Australian and New Zealand dollars were likely to react most to the headlines from the talks.

The dollar weakened 0.55% against the Japanese currency, trading at 144.04 yen after two straight weeks of gains.

Aside from the trade talks, investors were also processing data showing Japan's economy contracted at a slower-than-expected pace in January-March, as Prime Minister Shigeru Ishiba weighs the impact of interest rates on the economy.

The euro rose 0.34% to last stand at $1.1433 as markets continued to price in the European Central Bank's monetary policy outlook released last week, which suggested it may soon end its easing cycle, while sterling rose 0.47% to $1.35814.

Elsewhere, China's offshore yuan was last at 7.1844 per dollar after data showed China's export growth slowed to a three-month low in May, while factory deflation deepened to its worst in two years.

The New Zealand dollar rose 0.66% to $0.60585, while the Australian dollar was last up half a percentage point at $0.6529 in light volume as markets were closed for a public holiday.

In Australia, a much healthier fiscal position than the U.S., attractive yields and a "not too bad" economy should support the Aussie barring any negative headlines from the talks, Juckes said.

On the trade front, there were also reports that Japan's chief trade negotiator Ryosei Akazawa was planning a sixth round of talks in Washington.

The U.S. inflation report for May will be in focus later this week as investors and Federal Reserve policymakers look for evidence of the damage that trade restrictions are doing to the economy.

Fed officials have signaled they are in no rush to cut interest rates and signs of better-than-feared economic resilience would likely further strengthen their stance.

Interest rate futures show investors are anticipating the central bank could cut borrowing costs by 25 basis points, with the earliest move expected in October this year, according to data compiled by LSEG.

"May is the first month where the impact of Trump's universal 10% tariffs on ex-USMCA (United States-Mexico-Canada Agreement) imports is expected to be seen. The Fed will want several months of inflation data to assess the impact of the tariffs and, importantly, their resilience," said analysts at ANZ Bank. (alg)

Source: Reuters