Recent events have had a considerable impact on the foreign exchange market, largely due to intensifying trade tensions between the United States and China.

Dollar dips as Euro climbs amid rising trade turmoil:

The US dollar has seen marked volatility. Analysts at Deutsche Bank have raised concerns about a potential crisis of confidence in the dollar, suggesting that its position as the world’s principal reserve currency may be under threat.

In contrast, the euro has appreciated, reaching its highest level since 1 October 2024. This increase is partly attributed to the worsening market unrest following China’s introduction of a 34% tariff on US goods.

US–China tariff measures:

The trade dispute between the US and China has escalated further:

• US tariffs: President Trump announced a 104% tariff on Chinese imports, to take effect from 9 April 2025. This move follows China’s earlier decision to impose a 34% tariff on American products.

• China’s response: In response, China has vowed to "fight till the end", criticising the US measures as "unilateral bullying." Chinese officials have been firm in asserting their refusal to yield under pressure.

These rising tariff measures have sparked significant volatility in global markets and prompted fears of a full-blown trade war between the world’s two largest economies.

Comments from UK deputy governor Clare Lombardelli:

Clare Lombardelli, Deputy Governor for Monetary Policy at the Bank of England, has addressed the potential economic ramifications of the escalating tariff conflict:

• On economic activity: She remarked that tariffs are "likely to depress activity overall", expressing concern over a possible slowdown in economic growth as a result of heightened trade barriers.

• On inflation: Lombardelli also noted that it remains "too soon to judge" the impact of US tariffs on UK inflation, underlining the uncertainty surrounding how these international developments might influence domestic price levels.

Concerns over the global economic outlook deepen

In conclusion, the foreign exchange market is undergoing considerable fluctuations as US–China trade tensions intensify, with both countries imposing substantial tariffs on one another’s goods. Deputy Governor Lombardelli has voiced concerns regarding the potential negative consequences for economic activity and the unclear effects on inflation, highlighting the broader risks to the global economy stemming from this ongoing trade dispute.

Today, the Federal Reserve is due to publish the minutes from its FOMC meeting held on 18–19 March 2025. These minutes will offer detailed insights into the Committee’s discussions and considerations during that meeting.  At the March meeting, the Federal Reserve opted to keep the benchmark interest rate within the 4.25% to 4.50% range. This decision was shaped by forecasts of slower economic growth and rising inflation.

Investors and analysts will scrutinise the minutes for clues as to how the Federal Reserve intends to navigate ongoing economic uncertainties—particularly in light of President Trump’s announcement of substantial tariffs on several trading partners—and whether changes to monetary policy, such as interest rate adjustments, may be contemplated in response to shifting economic conditions.