Dollar Climbs at End of Wild Week on Signs of Easing in US-China Trade Tensions

The U.S. dollar surged to near two-week highs against the Swiss franc and eight-day highs against the yen in late April 2025, riding a wave of optimism as U.S.-China trade tensions showed fleeting signs of de-escalation. The U.S. Dollar Index (DXY) edged closer to 100.00, fueled by President Trump’s signals of potential tariff reductions and Beijing’s limited reciprocation. Yet beneath the surface, the rally masked enduring fragility in global markets—a cocktail of geopolitical posturing, supply chain chaos, and central bank crosscurrents.

The Tariff Tightrope: How Trade Moves Became a Currency Catalyst

The dollar’s rise hinged on two interlinked developments. First, Trump’s acknowledgment that the 145% tariffs on Chinese goods would “come down substantially” (though not to zero) alleviated fears of a full-blown trade war 2.0. Second, China’s decision to exempt certain U.S. imports—medical equipment, ethane, and agricultural products—under its retaliatory 125% tariffs signaled a tactical retreat from maximalist retaliation.

The immediate market reaction was visceral: the DXY climbed 0.6% for the week, its first weekly gain since mid-March. The dollar’s advance against the yen (to 143.49) and franc (to 0.8300) reflected bets that U.S. trade stability would outpace Japan’s inflation-driven rate hikes or Switzerland’s ultra-low policy rates. But the real story lies in the conditional nature of this relief.

The Fragile Foundation: Why This Rally Might Not Last

While the dollar benefited from trade ceasefire whispers, the underlying vulnerabilities remain stark. Consider three critical fault lines:

1. Supply Chain Gridlock: “Blank sailings” (canceled trans-Pacific routes) surged 600%, slashing container volumes to U.S. ports like Los Angeles by nearly 50%. This bottleneck risks $3,800 annual costs per household from tariff-driven inflation—a burden falling disproportionately on low-income families.

2. Geopolitical Whiplash: China’s exemptions were narrow and tactical. Beijing still restricts U.S. tech exports, blocks Boeing aircraft imports, and tightens its “unreliable entity list” for companies like Enphase Energy. Meanwhile, Trump’s 2024 election pledge to impose 60% tariffs on China looms as a political wildcard.

3. Central Bank Crosscurrents: The Federal Reserve’s independence remains in doubt after Trump’s denials of plans to remove Chair Powell. Simultaneously, China’s central bank cut interest rates to prop up its economy, while the Bank of Japan hinted at tightening if inflation hits 2%. This divergence keeps the dollar’s gains hostage to policy surprises.

Market Reactions: Stocks Soar, but Risks Linger

Equities and commodities mirrored the dollar’s volatility. The S&P 500 and Nasdaq jumped 1.7% and 2.5%, respectively, as trade hopes lifted industrials and tech. Bitcoin clawed toward $100,000, while gold fell 3.5% to $3,300—a classic “risk-on” rotation.

But the rally’s sustainability is questionable. The IMF slashed its 2025 global growth forecast to 2.8%, citing tariff-driven slowdowns. Even if tariffs drop by the proposed 50–60%, the $3,800 household cost burden and supply chain scars ensure lingering economic drag.

Conclusion: A Dollar Rally Built on Sand

The dollar’s late-April climb was a technical victory, not a strategic triumph. While trade ceasefire signals and China’s limited exemptions provided short-term relief, the structural issues remain unresolved. The 125% U.S. tariffs on China, ongoing supply chain disruptions, and geopolitical uncertainty ensure volatility will dominate 2025.

Investors should heed three takeaways:
1. Dollar Strength is Conditional: The DXY’s proximity to 100.00 hinges on concrete tariff reductions—not just headlines. A failure to lower tariffs meaningfully could trigger a swift reversal.
2. Sector-Specific Risks Persist: Avoid U.S. companies reliant on Chinese supply chains (e.g., automotive parts, semiconductors) until logistics stabilize.
3. Central Banks Will Tip the Scales: The Fed’s policy path and China’s rate cuts will shape currency flows more than any trade deal.

In the end, the dollar’s rise is a fleeting reprieve in a storm of unresolved tensions. As the old Wall Street adage goes: “Don’t fight the Fed—or the trade war.” Both are still in play.

Data sources: IMF, Federal Reserve, Bloomberg, Reuters, and White House statements (April 2025).