How Will Forex Markets Handle the US-China Trade War?

The forex market thrives on global macroeconomic shifts, and few events shake the system more than a trade war between the world’s two largest economies.

As of 2025, the United States and China have re-entered a period of escalating trade tensions, with the U.S. imposing new tariffs of up to 145% on Chinese imports, and China retaliating with tariffs of up to 125% on U.S. goods. The ripple effects are already felt across commodities, equity markets, and most importantly, currency markets.

For traders, the question now is: How do these developments impact forex, and how should you respond?

1. Increased Volatility: A Double-Edged Sword

One of the immediate effects of geopolitical tension is heightened volatility. In recent months, the USD/CNH (US dollar/Chinese yuan) pair has seen wild swings, influenced by policy announcements and investor sentiment. This volatility isn’t confined to the yuan; major safe-haven currencies like the JPY and CHF have also seen inflows.

For forex traders on platforms like FXCG, this kind of volatility can mean opportunity, but only if managed correctly. FXCG’s raw spreads starting from 0.0 pips and low commission model help reduce trading costs, allowing traders to capitalise on short-term movements without being eaten alive by spreads.

2. Risk-Off Sentiment Boosts the Dollar and Safe Havens

Historically, trade tensions create risk-off environments, where traders and investors move money away from riskier currencies (like emerging market pairs) and toward stable alternatives. In 2025, the U.S. dollar is expected to gain strength as global uncertainty rises, while the Japanese yen and Swiss franc continue to benefit from safe-haven flows.

What this means for you: Pay attention to how safe-haven dynamics shift. Use FXCG’s MetaTrader 4 platform to track these correlations with precision, especially during policy updates or retaliatory tariff news.

3. Central Bank Interventions Are Back in Focus

As trade barriers increase, central banks often step in to protect their domestic economies and currencies. The People’s Bank of China (PBOC) has already hinted at interventions to stabilise the yuan, while the U.S. Federal Reserve remains cautious on rate hikes due to rising import costs and potential inflation.

With FXCG’s ECN platform, traders gain direct access to market liquidity, meaning faster execution and less slippage, critical during high-impact news releases when central bank moves shake the market.

4. Emerging Markets on Edge

Emerging market currencies such as the Indian rupee (INR), South African rand (ZAR), and Brazilian real (BRL) are also feeling the pressure. As the global economy slows down from tariff-induced disruptions, these currencies become vulnerable to capital flight.

FXCG traders looking to trade these pairs should use tools like forex demo accounts to practice different scenarios. It’s also crucial to set appropriate leverage and risk management parameters, especially when trading high-volatility emerging market pairs.

 Strategic Tips for Trading During a Trade War

• Stick to Major Pairs: Liquidity is key during uncertain times. Trade EUR/USD, USD/JPY, and USD/CNH to minimise slippage. 
• Watch the Economic Calendar: FXCG’s platform offers daily updates on global economic events, including tariff announcements and speeches from central banks. 
• Use Wide Stop Losses: Given the volatile environment, wider stop losses can protect against whipsaws. Use FXCG’s low-cost structure to manage these trades more affordably. 
• Follow Sentiment Indicators: Track market sentiment using tools and indicators available on MetaTrader 4. COT reports, volume profiles, and order books can offer deeper insights.

Final Thoughts

The 2025 US-China trade war is a powerful reminder that forex isn’t just about charts; it’s about global economics, politics, and how traders respond to uncertainty. Whether you’re an experienced trader or just getting started, adapting your strategy to reflect macroeconomic shifts is critical.

At FXCG, we provide more than a trading platform. With raw spreads, lightning-fast execution, and a robust ECN trading infrastructure, you get the transparency and efficiency needed to trade through turbulent times.