The US Dollar strengthened across the board for the third consecutive day on Tuesday. The pair is trading near 98.75 at the early European session, at a short distance from the 98.85 intraday highs, and well above the 98.00 lows hit last Friday.
The USD Index, which measures the value of the USD against a basket of six majors, is drawing support from the risk-on market mood triggered by US President Donald Trump’s optimism about a trade deal with China that would avoid higher tariffs.
Trump calmed markets on Monday, announcing that he will meet the Chinese Prime Minister Xi Jinping in South Korea next week and that he is expecting to reach a “fair deal” that would lead to a “very good relationship” between the world’s two major economies.
Meanwhile, the director of the US National Economic Council affirmed that the US federal government shutdown is likely to end this week in a CNBC interview, which contributed to easing risk aversion and provided a fresh impulse to the US Dollar.
The US government shutdown entered its fourth week and has caused a blackout on most US macroeconomic releases, including key US employment and inflation data, and might deprive the Federal Reserve of key input to decide on monetary policy at next week’s monetary policy meeting.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.