The intensification of the trade conflict between the United States and China has provided unexpected support to the euro, which has gained ground against the US dollar and the Chinese renminbi. While the confidence of the global markets is crumbling due to the rapid climbing of the pricing conflict, investors turn away from the greenback, allowing the euro to take advantage of its relative strength and its perceived status as a stable alternative in an increasingly unstable commercial environment. Since the start of the year, the euro has increased by 4.63% compared to the dollar and 5.34% compared to the Chinese Yuan, according to data from the European Central Bank (ECB).
The increase in customs tariffs shakes the confidence of investors
The trade conflict has entered a more offensive phase when the United States has made vast increases in customs duties. President Donald Trump imposed additional customs duties of 50% on Chinese imports, despite increasing concerns about the instability of the financial markets. The new measures came into force at midnight on Wednesday, April 9, 2025, last minute suspended from the White House. Beijing has promised to apply its own retaliation measures.
This brutal escalation marked a decisive break with decades of economic liberalization and raised the risk of permanent reshaping of the dynamics of world trade. Confidence in the international supply chains that have decreased, the foreign exchange markets have experienced a sharp increase in volatility, especially in the currencies of the G10 and the emerging markets.
L’EUR/USD gagne
In the currency markets, the Euro-Dollar pair (EUR/USD) has ironed above the 1.09 bar. The strength of the euro cannot be explained by an improvement in the fundamentals of the euro zone, which remain moderate, but rather by the growing weakness of the US dollar. Analysts expect the euro, as the second most liquid currency in the world and a privileged option for exchange reserves, benefit more from the erosion of confidence in the dollar.
Yuan controlled depreciation
At the same time, the management of Chinese currency occupied the front of the stage and has become a central element of the Beijing strategy. The Popular Banque of China (PBOC), which closely controls the daily reference rate of the Yuan – inside which the Yuan Onshore (CNY) can fluctuate by a maximum of 2% – has set the USD/CNY exchange rate at 7.2066. This is the fifth adjustment consecutive to the increase, interpreted by the markets as a means for Beijing to amortize the shock of the increase in customs duties by a controlled depreciation of its currency.
-The CNY/EUR pair, now above the 8.00 mark, should make Chinese products cheaper for the euro zone. The CNY designates the Yuan Onshore, exchanged at the national level under strict regulation also indicated by the ECB, while the CNH is its offshore version, exchanged more freely on international markets, especially in Hong Kong.
EUR/CNH reaches heights
The offshore currency markets reacted with notable volatility. The USD/CNH pair exceeded 7,400, digging the gap between the CNH and the CNY beyond 1%. Although Chinese state banks intervened by selling US dollars to defend the Yuan, this movement suggests that the authorities were ready to tolerate a lower exchange rate in order to amortize the impact of the commercial shock. During the last verification, on April 9, the CNH was exchanged at 7.38 for an American dollar, or about 0.5% less than the continental yuan.
The implicit CNH yield over a week has remained only 2%, well below the 5% levels observed historically when the authorities seek to contain speculative volatility. This indicates that Beijing has not yet opted for an aggressive liquidity tightening and could be willing to let the USD/CNH exceed the 7.40 threshold, especially if this allows the effects of customs duties to the Chinese export sector.
All in all, the evolution of the macroeconomic landscape highlights the surprising resistance of the euro and its emerging role as a relative refuge value. While investors are reassessing their global exposure to the light of the trade war between the United States and China, the euro benefits from being considered as a neutral, liquid and stable currency-at least for the moment.
This article was and translated and edited in French.
