The Impact of Trade Tensions on Forex – USD/CNY in the Hot Seat

What Really Moves the USD/CNY Pair in Today’s Forex Market

Multiple financial media outlets have analyzed the USD/CNY currency pair in the forex market during the beginning of Q2 2025. They found that the market is reacting strongly to heated economic and political developments—especially the renewed trade tensions between the US and China, which have once again shaken global financial markets.

1. Trade conflict: the starting point of volatility

In early April 2025, US President Donald Trump announced a 104% tariff on imports from China, covering major goods such as steel, electronics, and electric vehicles. He claimed it was a protective measure for domestic producers against unfair competition. The announcement triggered a global sell-off in risk assets, with investors rushing to hold US dollars as a safe haven currency.

China, however, did not remain silent. The Beijing government declared that it “will not allow national interests to be undermined,” and signaled potential countermeasures. These may include restrictions on rare earth exports, reduced investment in the US, and allowing the yuan to weaken—a strategy China used in 2019 and appears ready to deploy again in 2025.

2. Direct intervention by the People's Bank of China

To cushion the impact of external pressure, the People's Bank of China (PBoC) set the USD/CNY fixing rate at 7.2066 on April 9, 2025. This was significantly weaker than the market estimate of 7.3348. This move reflects China’s clear intent to manage exchange rates to support exports and absorb the blow from US tariffs.

Forex Market Impact Based on Real Market Data

A closer look at the USD/CNY chart over the 7-day period following the announcement shows a clear uptrend for the US dollar. The data is as follows:

• April 2, 2025: USD/CNY = 7.267

• April 5, 2025: USD/CNY = 7.303

• April 8, 2025: USD/CNY = 7.339

• April 9, 2025: USD/CNY = 7.350

This upward momentum reflects continued USD strength, driven by global demand for safe-haven assets. The movement aligns closely with the fundamental analysis pointing to policy shifts and geopolitical tensions.

Ongoing trade tensions continue to drive volatility in the USD/CNY market. IUX equips traders with the resources necessary to navigate currency movements driven by real-world economic developments. Open an account with IUX today and position yourself to respond strategically to global market shifts.

Beyond Forex: The Broader Impact of the Trade War

The yuan’s depreciation isn’t just affecting the forex market. It’s rippling across emerging markets in Asia, particularly the Indian rupee (INR), which dropped 0.4% in a single day (April 9, 2025), hitting 86.65 per dollar. The fall highlights capital outflows as foreign investors grow increasingly concerned about Asia’s economic stability.

Meanwhile, the US S&P 500 index dropped 1.6% on April 8 following a wave of selling in tech and industrial stocks with exposure to China—names like Apple, Tesla, and Nvidia—due to the risk of retaliatory tariffs.

This series of events shows that shifts by the two global economic giants are not limited to the forex market or to the USD/CNY pair. From here, developments are likely to have macro-level consequences, affecting currencies across Asia, equity markets, and global risk assets.

Forex Trading Strategies for USD/CNY During the Trade War

• Stay alert to news:

Pay close attention to official statements from both the US and Chinese governments, especially policy shifts, tariff changes, or remarks by top leaders. A single headline can move USD/CNY or USD/CNH by hundreds of pips within hours. Traders should set up alerts from trusted news sources and watch closely during high-impact periods, such as just before or after Fed or PBoC announcements.

• Follow the trend:

With the USD still in an uptrend due to its safe-haven demand, traders can use breakout strategies when prices breach resistance levels, or enter on pullbacks near key support zones or moving averages. Confirm entries using technical indicators like MACD or RSI before opening positions.

• Use leverage cautiously:

In a volatile environment, using excessive leverage may amplify gains but also dramatically increases risk. A reasonable leverage level—no more than 1:10 for beginners—is advised. Position sizes should also align with portfolio size to maintain a healthy margin level.

• Always set a stop-loss:

This is especially important when trading USD/CNH, the offshore version of the yuan, which tends to be more volatile than the onshore USD/CNY pair. A stop-loss helps limit unexpected losses from sudden market moves, including potential government interventions or unanticipated news events.

USD/CNY Outlook for 2025

• The forex market is expected to remain highly volatile throughout 2025 due to ongoing US-China trade tensions and their technological rivalry.

• The People’s Bank of China (PBoC) will likely continue easing policy while allowing the yuan to weaken in order to maintain economic stability.

• If no clear path toward negotiations emerges, USD/CNY could test the 7.40 level or higher in the medium to long term.

• Forex traders analyzing USD/CNY this year should monitor Chinese and US economic data, tariff developments, and top-level political statements in real time.

• Trading strategies should remain flexible, with appropriate stop-loss levels and tight risk management, as the market is poised to respond sharply to breaking news throughout the year.

Note: This article is intended for preliminary educational purposes only and is not intended to provide investment guidance. Investors should conduct further research before making investment decisions.