While reports of an agreement had been flagged ahead of U.S. President Donald Trump and his Chinese counterparty Xi Jinping's meeting on the sidelines of the G20 meeting, the outcome was more positive than investors had expected.
Trump said he would hold back on new tariffs and that China will buy more farm products.
Trump also said the U.S. Commerce Department would study whether to take Huawei off the list of firms banned from buying components and technology from U.S. companies without government approval.
Global stocks jumped and investors dumped safe-haven assets.
China's offshore yuan rose more than 0.5% to as high as 6.8165 yuan per dollar, near a two-month high, before easing back to 6.8464 after disappointing factory activity data.
The dollar, which has fallen in recent weeks on rising expectations for Federal Reserve interest rate cuts, rose 0.4% against a basket of currencies, its index hitting 96.601. Versus the euro it rose 0.4% to $1.1328.
"The compromise reached between Trump and Xi at the week's G20 meeting went further than most had expected, with Trump putting the next tranche of tariffs on hold and reopening US companies' ability to supply Huawei," said RBC currency strategist Adam Cole.
"It is not clear, however, whether the latter will clear congress and there is plenty of scope for trade talks to break down again in the future."
The Japanese yen, which investors tend to buy when they are looking for a safe place to put their money, dropped 0.6% to as low as 108.53, its weakest since June 19.
The Swiss franc lost 0.4% versus the euro to 1.1142 francs. It also slumped 0.8% against the dollar .
The Australian dollar, sensitive to the economic fortunes of China, the country's largest trading partner, dropped 0.4% at $0.6993, with the weaker-than-expected factory data out of China overshadowing the trade ceasefire.
Britain's sterling slipped 0.2% to $1.2670.
This week sees the release of some crucial U.S. economic data including non-farm payrolls on Friday and non-manufacturing activity on Wednesday, which should help investors better assess whether the Federal Reserve will cut interest rates later this month.
"Some Fed officials curbed easing views recently and the data will help the market get a clearer picture of whether the Fed stands poised to cut rates this month," said Koji Fukaya, president at Office Fukaya Consulting.