US Dollar Slides vs Euro, Pound as Trump Reignites US-China Trade War

Modified: Sunday, 12 October 2025 21:45 BST - Written by Ben Hughes

STORY LINK US Dollar Slides vs Euro, Pound as Trump Reignites US-China Trade War

On Friday, President Trump threatened to impose substantial tariffs on China due to its hostile policies on export controls, notably on rare-earth minerals.

There was an immediate and sharp market response with a slide in risk appetite while the dollar posted sharp losses as uncertainty and chaos fears surged again.

After the New York close, Trump threatened to impose 100% tariffs on China from November 1st. He also cast doubt on whether the meeting with Chinese President Xi in two weeks' time would go ahead.

The S&P 500 index closed 2.7% lower with futures sliding over 3% on the day.

The Euro to Dollar (EUR/USD) exchange rate recovered to 1.1620 from earlier 2-month lows near 1.1550 while the Pound to Dollar (GBP/USD) exchange rate bounced to 1.3350 from 9-week lows near 1.3260.

Risk assets overall took a tumble with bitcoin sliding close to 9% at one stage while gold secured renewed gains and the yen also rebounded strongly.

Mike Brown, Senior Research Strategist at Pepperstone commented; "I would say as always with Trump and I think the market has learned this now, it’s difficult to determine what is the bluster and rhetoric and what he might follow through on.”


He added; are we now looking at having to tear up the assumptions we did have that trade was a done deal and now look at a re-escalation of tensions between the two. If we are, and talks are in jeopardy, you are looking at a fairly chunky leg lower in risk in the days and weeks ahead."

There will inevitably be a high degree of uncertainty with elevated volatility across asset classes. There is scope for buying on dips.

According to Daiwa Capital Markets Head of Research Chris Scicluna; “The temptation, given what’s happened since the start of the year and the resilience of markets, is to fade these announcements and take this with a pinch of salt what he’s saying. We’ll have to see what the substance is.”

The response of politicians and central bankers will be watched closely with a particular focus on the Federal Reserve.

Monex Director Of Trading Juan Perez noted; “It sends a message of negativity. What markets, for the most part, and investors need is a little bit clearer guidance, especially when trying to figure out if the Federal Reserve is going to deliver what they want, which is 50 basis points slashed off the interest rate for the remainder of the year.”

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TAGS: American Dollar Forecasts