May 8 (Reuters) - The dollar index soared to a one-month high following the U.K.-U.S. trade agreement and a Bank of England rate cut, both of which lifted investor sentiment ahead of weekend talks with China. The risk-on DXY surge was driven by higher yields, increasing oil prices, and a rise of more than 4% in Bitcoin. President Donald Trump hailed the trade deal as a "breakthrough" agreement and said he expects substantive negotiations between the U.S. and China this weekend. He also took a shot at Fed Chair Jerome Powell for not cutting when other central banks were.
China CPI data is due this weekend.
Details of the trade deal include Britain lowering tariff levels while a 10% baseline U.S. tariff remains in place. Commerce Secretary Howard Lutnick said the UK would buy $10 billion of Boeing aircraft and British Prime Minister Keir Starmer said the deal delivers on a promise to protect the country's carmakers and steel sector.
A drop in weekly jobless claims helped support risk-taking sentiment. Treasury yields jumped with the 2-year reaching its highest level in three weeks. A number of Fed officials will speak on Friday. In its annual Financial Stability Report, the Bank of Canada highlighted the risks that a prolonged trade war may have. Governor Tiff Macklem said the uncertainties were so great that the bank's analysis is "an assessment of vulnerabilities." Canadian jobs data is due on Friday. Chinese President Xi Jinping told Russia's Vladimir Putin their two countries should be "friends of steel." Ukraine's parliament ratified a minerals deal signed with the United States.
EUR/USD fell through 1.1250 support and approached the bottom of a very narrow Bollinger Band at 1.1208.
Concerned about further losses, option accounts purchased short-dated puts with strikes set near 1.11. The April 3 post-Liberation Day high of 1.1147 offers support below 1.12. The European Commission proposed countermeasures to U.S. tariffs of up to 95 billion euros. GBP/USD slipped below its 21-DMA, giving up gains following an expected Bank of England cut and the U.S. trade deal.
Bank of England Governor Andrew Bailey welcomed the trade news, saying it will help reduce uncertainty. The April 23 low of 1.3234 offers nearby support. USD/JPY surged over 1.6% to a near one-month high due to a jump in Treasury yields, rising oil and higher shares. Gains stalled briefly near the 146 level, though the pair remains on pace to close above its upper Bollinger, hinting at a bullish extension to the 146.72 55-DMA.
Japan wage and spending data is due Friday.
Yen crosses also rose toward range tops.
Treasury yields were up 6 to 12 basis points. The 2s-10s curve was down marginally at +48.5bp. The S&P 500 rose 1.16% led by gains in consumer shares.
Oil surged 3.1% on trade optimism before US-China talks and lower OPEC output in April.
Gold fell 1.91% due to dollar strength while copper fell 1.22%.
Heading toward the close: EUR/USD -0.67%, USD/JPY +1.44%, GBP/USD -0.38%, AUD/USD -0.44%, DXY +1.04%, EUR/JPY +0.73%, GBP/JPY +1.11%, AUD/JPY +1.02%.(Editing by Burton Frierson Reporting by Robert Fullem)
