Forex Markets React to U.S. Tariff Pause and Yuan Slide: Explained

Global foreign exchange markets remained on edge as of April 10, 2025, following a flurry of trade policy announcements and political developments that sparked significant shifts in major and emerging currencies. The U.S. dollar rallied against traditional safe-haven currencies, while the Chinese yuan dropped to historic lows. Meanwhile, the euro showed strength thanks to political clarity in the EU’s largest economy.

President Donald Trump’s announcement of a 90-day pause on most newly introduced tariffs, excluding those on China—which were increased to 125%—injected both optimism and uncertainty into global currency markets. The move sparked a surge in U.S. equities and buoyed the greenback, while escalating trade tensions with China weighed heavily on emerging markets and the yuan.

Dollar Rallies as Investors Eye Trade Truce Potential

The U.S. dollar (USD) gained ground across several major currency pairs following the tariff pause. The USD/JPY pair rose 1.2%, with the dollar trading at 148.80 yen, reflecting renewed investor confidence in U.S. assets and a partial unwind of risk-averse positions. The dollar also climbed 1.14% against the Swiss franc, reaching 0.8569, as safe-haven flows reversed amid the temporary trade relief.

This strength came despite prior weakness tied to tariff escalation concerns earlier in the week. Market sentiment shifted after the White House signaled that it was open to renegotiating trade terms with non-Chinese partners.

Forex traders remain cautious, however. As noted in Reuters, market participants are closely watching for new developments in trade talks, central bank signals, and economic data, especially ahead of upcoming inflation figures that could sway Federal Reserve policy.

Yuan Plummets, Euro Ticks Higher on Political Stability

The Chinese yuan (CNY) came under intense pressure, with the offshore yuan falling to a record low of 7.3815 per dollar. The currency’s depreciation follows the U.S. decision to exclude China from the tariff pause and instead increase duties on Chinese goods to 125%. This move has stoked concerns over capital flight and policy tightening in China, with the People’s Bank of China facing renewed pressure to stabilize markets.

Emerging markets also felt the impact. The Indian rupee fell to a three-week low of 86.69 per dollar, dragged down by the yuan’s weakness and trade-related uncertainty. Broader risk aversion in Asia-Pacific currencies was apparent as investors shifted capital toward safer, dollar-denominated assets.

In contrast, the euro (EUR) posted modest gains, trading at $1.0958, buoyed by news that Germany’s center-left and conservative parties had reached a coalition agreement. This political clarity supported the euro amid a broader risk-on rally. Analysts at Reuters suggested the news helped anchor investor confidence in the EU despite ongoing global economic uncertainties.

With trade tensions, central bank policy, and geopolitical developments in flux, foreign exchange markets remain highly sensitive. Investors and analysts are watching closely to see whether the U.S. tariff truce holds—and whether further yuan weakness could trigger broader contagion across emerging markets.