European session review: USD strengthens as market participants focus on stimulus talks in Washington and U.S.-China tensions

USD rose against its major rivals in the European session on Monday, as investors looked to signals of a re-start of stimulus talks between the White House and congressional Democrats and escalating U.S.-China tensions.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.20% to 93.62.

Negotiations over the next stimulus package collapsed on Friday, prompting the U.S. president Donald Trump to take executive actions to extend unemployment benefits for Americans who lost their jobs during the COVID-19 pandemic. However, the U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin hinted on Sunday that they were open to resume stimulus talks and to discuss a narrower deal that would extend some aid until the end of the year.

Worsening tensions between the U.S. and China also continued to support the U.S. currency. China announced the imposition of sanctions against U.S. officials in retaliation to the Trump administration's decision to sanction Chinese officials over Hong Kong-related issues. China's Foreign Ministry said that it would sanction 11 Americans, including Senators Marco Rubio and Ted Cruz, "in response to the U.S.’s wrong behaviors". However, it should be noted that the sanction list does not include any members of the Trump administration.

Market participants are also preparing for the U.S.-China trade talks later this week. Both sides' senior officials are to hold a teleconference on August 15 to review the implementation of their Phase 1 trade agreement. Rising tensions between Washington and Beijing raised concerns that their trade deal could be in jeopardy.