Attention is turning to a high-stakes meeting between US President Donald Trump and Chinese President Xi Jinping later this week, with investors watching for any indications that the leaders of the world's two largest economies can prevent a further deterioration in relations.
Xi arrives in Washington on Wednesday for the first time in more than a decade, helping fuel optimism that a trade truce deal between the two countries will be extended and there could be potential cooperation over artificial intelligence.
"For markets, the big question is what’s going to happen when the current one-year trade truce expires in November, and whilst the general tone remains positive, there still isn’t an agreement yet," Deutsche Bank strategist Jim Reid said.
Global bond yields reversed an earlier rise and fell in line with the oil price. That said, investors are pricing in another round of rate hikes from major central banks, which could limit the decline in debt yields.
US 10-year Treasury yields US10YT=RR were down 3 basis points on the day to 4.93%, falling further below the 5% threshold, which in turn cut support for the dollar, pushing it below a seven-week high against a basket of currencies struck earlier in the day.
The dollar tilted lower, most notably against the yen JPY=, down 0.15% at 157.14, backing off a three-week high.
The Bank of Japan raised rates last week to a 31-year high but two dissenting votes and lack of explicit hawkish guidance disappointed investors, which has left the yen vulnerable and kept traders on alert for signs of official intervention.
"FX intervention remains a blunt tool to prop up currencies, and without a forceful monetary policy response it will be difficult for Japanese authorities to rein in the selloff in the yen," said Matthew Ryan, head of market strategy at Ebury.
The Federal Reserve, by contrast, raised rates last week and warned its fight against inflation was not over, keeping the door open to further tightening.
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