Trump’s tariff threat on China sinks US Dollar as market sentiment deteriorates

The US Dollar Index falls below 99.00 as traders react to renewed trade tensions between the United States and China.
US President Donald Trump threatens a “massive increase” in tariffs on Chinese goods following Beijing’s new restrictions on rare earth exports.
Rising geopolitical uncertainty and fears of retaliatory measures weigh on risk appetite and push the Greenback lower.

Ghiles Guezout FXStreet

The US Dollar Index (DXY) drops by 0.48% to trade around 98.90 on Friday at the time of writing, extending its recent weakness as global investors react to a new escalation in trade tensions between the United States (US) and China.

US President Donald Trump said on his social media platform Truth Social that his administration is considering a “massive increase of tariffs” on Chinese imports, describing Beijing’s latest export restrictions on rare earths as “hostile.” Trump added that he sees “no reason” to meet Chinese President Xi Jinping at the upcoming Asia-Pacific Economic Cooperation (APEC) summit in South Korea, suggesting a deterioration in bilateral relations.

China announced on Thursday new limits on the trade of rare earth elements and technologies derived from them, requiring special licenses for any product containing more than 0.1% of rare earth materials sourced from China. These minerals are essential for advanced manufacturing, including electric vehicles, jet engines, and semiconductors, making the new measures a significant blow to global supply chains.

Markets fear that this renewed confrontation between the world’s two largest economies could ignite another trade war, undermining growth prospects and increasing volatility across financial assets. The announcement triggered a broad risk-off movement, with US Equities sliding and Treasury yields falling as investors shifted toward safe-haven assets.

The US Dollar (USD) decline reflects growing expectations that heightened trade and political uncertainty could prompt the Federal Reserve (Fed) to adopt a more accommodative stance. According to the CME FedWatch Tool, markets are now pricing in a strong chance of rate cuts in October and December if trade tensions continue to weigh on business confidence and investment flows.

Escalating tensions between Washington and Beijing would likely sustain volatility in the US Dollar as traders reassess global growth and inflation trajectories in the final quarter of the year.

US Dollar Index 4-hour chart. Source: FXStreet.

Author

Ghiles Guezout

FXStreet

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

EUR/USD clings to gains around 1.1800

EUR/USD manages to regain composure and retests the 1.1800 region in quite a positive start to the week. The pair’s bounce follows the US Dollar’s offered stance post-SCOTUS ruling ahead of important US data and Fedspeak on Tuesday.

GBP/USD treads water near 1.3500 as BoE-Fed divergence debate stalls

GBP/USD spent Monday spinning in place as market participants await a fresh catalyst to break the pair out of its recent range. The BoE's February hold came with a surprisingly dovish 5-4 split, and UK Consumer Price Index data last week showed inflation easing to 3.0%, reinforcing the case for earlier rate cuts, with most economists now looking to April or March for the next move.

Gold climbs above $5,200 on geopolitical tensions, trade uncertainty

Gold price jumps to around $5,230 during the early Asian session on Tuesday. The rally of the precious metal is bolstered by heightened geopolitical tensions and global trade uncertainty following US tariff decisions. Traders brace for the US January Producer Price Index report on Friday for fresh impetus.

Solana DeFi platform Step Finance to close operations following treasury hack

The Solana based decentralized finance platform Step Finance announced it will end all operations effective immediately following a breach that drained its treasury.

Supreme Court nixes tariffs, Trump teases 15% global tariff

On February 20th, the Supreme Court ruled that Trump’s global tariffs under IEEPA authority were unconstitutional, effectively nullifying the framework. However, the relief was short-lived. Within hours, Trump floated a 15% blanket tariff under an alternative legal authority.

XRP recovers slightly as bearish sentiment dominates crypto market

Ripple is rising above $1.40 at the time of writing on Monday amid fresh tariff-triggered headwinds in the broader cryptocurrency market. The sell-off to $1.33, the token’s intraday low, can be attributed to macroeconomic uncertainty, geopolitical tensions and risk-averse sentiment among other factors.