US-China Trade Truce Boosts Dollar, Euro and Yen React

On May 12, 2025, the United States and China reached a significant agreement in Geneva to pause their escalating trade tensions. The deal stipulates a 90-day suspension of tariff increases, with both nations committing to substantial reductions in existing tariffs. The U.S. will decrease tariffs on Chinese goods from 145% to 30%, while China will lower tariffs on U.S. products from 125% to 10%.

This development has had a notable impact on currency markets. Reuters reported that the U.S. dollar strengthened significantly, with the euro falling 1.5% to 1.078, and the Japanese yen weakening, pushing the USD/JPY exchange rate up by 2.1% to 148.49.

Analysts view this agreement as a positive step toward de-escalating trade tensions. Zhiwei Zhang and Kenneth Broux highlighted the unexpectedly positive scope of the deal and its potential benefits to global economies and markets. However, some experts, like Jan von Gerich, remain cautious about the long-term stability, noting lingering uncertainties that could affect currency markets.

In the eurozone, the European Central Bank (ECB) had previously projected a EUR/USD exchange rate of 0.9900 for Q1 2025, with expectations of gradual appreciation throughout the year. The recent U.S.-China trade agreement may influence these forecasts, potentially leading to a stronger dollar and a weaker euro.

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For the Japanese yen, MUFG Research had forecasted a USD/JPY exchange rate of 154.00 for Q1 2025, with a gradual decline to 148.00 by Q4 2025. The yen's recent depreciation against the dollar may prompt a reassessment of these projections.

In summary, the U.S.-China trade truce has led to a stronger U.S. dollar, with the euro and yen experiencing declines. While this development is seen as a positive step toward reducing trade tensions, currency market participants should remain vigilant, as the situation continues to evolve.

     

Disclaimer: aPlease note any provider recommendations, currency forecasts or any opinions of our authors should not be taken as a reference to buy or sell any financial product.