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Dollar resumes weakness after China showed it won't yield to U.S. pressure on trade.
Market sentiment suffered a setback after China showed it is not ready to give U.S. President Donald Trump an easy win, which helps the Pound-to-Dollar (GBP/USD) retrace some recent weakness.
GBP/USD pared recent losses to 1.33017 (Wednesday's low was at 1.3233) after Chinese authorities demanded the U.S. revoke all unilateral tariffs while confirming there were no talks on reaching a trade deal.
"The U.S. should respond to rational voices in the international community and within its own borders and thoroughly remove all unilateral tariffs imposed on China, if it really wants to solve the problem," He Yadong, the Ministry of Commerce's spokesman, said at a regular briefing on Thursday in Beijing.
China knows the U.S. has more to lose and that time is on its side in the trade war. Because of this, China on Thursday showed it is in no mood to make overtures to U.S. President Donald Trump's recent attempts to cool tensions over China-U.S. trade.
Stocks and the Dollar rallied through the Tuesday and Wednesday trading sessions after traders grew hopeful the U.S. and China were set to negotiate a new trade deal, which would signal peak trade war fears had been reached.
Hopes for a détente rose after U.S. President Trump said on Tuesday he planned to be "very nice" to China in trade talks and that tariffs could drop in both countries if they could reach a deal, adding: "It will come down substantially, but it won’t be zero."
However, Yadong dismissed the prospect of imminent progress:
"Any reports on development in talks are groundless". He called on the U.S. to "show sincerity" if it wants to make a deal.
U.S. stocks are set for another negative open on Thursday as they track losses in Asia and Europe and put a lid on hopes for a more meaningful recovery.
"Trump continues to focus on China. With tariffs from both sides in triple-digit territory, the U.S. President appears to be genuinely interested in a deal that will benefit both countries. One could say that he is worrying about his plunging approval rating, others could point to pressure from both his closest advisors and business contacts to turn the sentiment around," says Achilleas Georgolopoulos, Senior Market Analyst at Trading Point.
The Dollar has traditionally benefited when market sentiment sours, but in 2025, U.S. assets are under broad pressure as investors fear U.S. import tariffs will lead to a surge in inflation and kill economic growth.
USD weakness was not expected, as markets entered 2025 anticipating Trump's economic policies and tariffs would spur on a multi-month rally.
But, four months in, the GBP/USD exchange rate is sitting on a 6.40% gain, with further advances likely if U.S. economic activity deteriorates under the weight of the policy uncertainty that looks set to remain a feature of the coming months and years.