China Hits Back at Trump Tariffs – What’s Next for the Dollar?  

The US Dollar has posted significant gains as President Trump’s latest tariffs send shockwaves through global markets, driving increased demand for safe-haven assets. 

However, China hit back at Trump on Tuesday, announcing several tariffs on select U.S. imports. 

With trade tensions escalating between the US and China, the geopolitical landscape is set to play a pivotal role in shaping the Dollar’s trajectory. Investors are closely watching how this evolving trade war will impact key currencies and broader economic trends. 

Recent Developments  

President Trump imposed a 25% tariff on imports from Mexico and Canada and a 10% tariff on Chinese goods, along with a 10% duty on Canadian energy exports. The administration has framed these measures as both an economic safeguard and a response to illegal immigration concerns, further intensifying trade tensions. ⁽¹⁾ 

In reaction, Canada and Mexico have pursued diplomatic measures to delay the tariffs. Canada secured a 30-day reprieve after committing to enhanced border security, while Mexico agreed to deploy additional troops to the US-Mexico border to address drug trafficking concerns. 

China, however, responded with a direct countermeasure—imposing 15% tariffs on US coal and liquefied natural gas, alongside a 10% duty on crude oil, large vehicles, and agricultural machinery. This move adds further complexity to an already strained economic relationship. ⁽²⁾ 

Additionally, concerns about the tariffs’ impact on domestic industries are emerging, with Australian officials seeking federal assistance to protect local manufacturing jobs that may be affected by the shifting trade landscape. ⁽³⁾  

How did Markets React?  

The US Dollar surged on Monday as fresh tariffs on Mexico, Canada, and China deepened concerns over a prolonged trade war. 

  • The Canadian Dollar and Mexican Peso fell to multi-year lows, reflecting investor uncertainty. 
  • China’s offshore Yuan depreciated to a record low, signaling concerns over trade disruptions. 
  • The Euro and Swiss Franc also weakened against the Dollar, highlighting broad safe-haven flows. ⁽⁴⁾ 

In commodities, gold and silver rallied to record highs. However, gains were partially tempered as the suspension of Mexican and Canadian tariffs helped improve sentiment toward risk assets. ⁽⁵⁾ 

Inflation and the Fed  

One of the most critical aspects of the trade war is its potential impact on US inflation. Increased tariffs raise the cost of imported goods, which could push inflation higher and influence the Federal Reserve’s monetary policy stance. 

Recent market repricing suggests that traders are now anticipating fewer rate cuts from the Fed this year, as inflationary pressures could support the case for maintaining current interest rates. This outlook has provided further support for the US Dollar. ⁽⁶⁾ 

However, should economic indicators begin to show signs of deterioration, the Fed may have no choice but to reassess and potentially introduce rate cuts to stimulate growth—an outcome that could limit the Dollar’s upside momentum. 

Economic Data in Focus  

The US economy continues to show strength, with the latest GDP figures highlighting 2.3% growth. While less than expected, the data still displayed robust economic growth. ISM Manufacturing PMI data also showed improvement.   

Traders and investors will be focused on fresh data this week, including ADP employment change and the ISM Services PMI coming out on Wednesday. Labor market data, including Nonfarm Payrolls and the US Unemployment Rate, is set for release on Friday. ⁽⁷⁾  

The incoming data will provide clues on how the Fed will determine its next moves on interest rates, which are expected to shake up financial markets, especially USD pairs, gold, and stocks.  

Outlook for the Dollar  

The US dollar has gained strength amid these trade tensions, reflecting its role as a safe-haven currency during periods of economic uncertainty. If economic conditions continue to improve with the Fed holding rates steady, the US Dollar could continue to dominate.  

While the USD remains in control, its gains could be limited if negotiations with Mexico and Canada lead to tariff delays.   

Traders should closely watch any discussions between President Trump and his counterparts in Canada and Mexico, along with any breaking policy decisions, to assess their potential impact on the USD’s trajectory. 

Sources: ⁽¹⁾ ⁽²⁾ ⁽³⁾ Barron’s, ⁽⁴⁾ ⁽⁵⁾ ⁽⁶⁾ Reuters, ⁽⁷⁾ Marketwatch 

The information provided is not intended to serve as investment advice or a sufficient basis for making investment decisions. It is meant solely for informational purposes.

This website you are entering is the genuine Daman Markets website by Daman Securities LLC (“Daman”). (https://damanmarkets.com)

It has come to the attention of Daman that a fraudulent website (https://damaninvest.com) is unlawfully using Daman name, brand, and logo. They trick investors into believing they are dealing with Daman and to fraudulently obtain personal financial details and extract money from those people who are deceived into using it.

The fraudulent website is not connected in any way with Daman.

Daman will never ask for your personal information such as contact details, bank account number, and or credit card details by email, text or WhatsApp message, or other electronic means.

Daman will not be liable for any losses paid, suffered, or incurred by anyone as a result of being victimized by the fraudulent company. If you fall victim of the fraudulent company, please report the incident to your local police.