Optimism builds as US-China trade talks resume amid currency pressure and Chinese stimulus

Markets began the day on a cautiously optimistic note as investors digested multiple signals pointing to a possible de-escalation in the US-China trade conflict. Meanwhile, significant monetary easing from the People’s Bank of China added further support to risk sentiment, even as some strategists warn of looming pressure on the dollar from Asia.

US-China trade talks set to begin with focus on de-escalation

After weeks of escalating tension, Washington and Beijing confirmed their first face-to-face trade talks since the imposition of sweeping tariffs:

• The US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet China’s Vice Premier He Lifeng this weekend in Switzerland.
• Talks will focus on de-escalation of tariffs rather than forging a full trade agreement.
• China emphasized the need for the US to show “sincerity” and avoid coercive tactics. Beijing is unwilling to compromise on core principles.

President Trump reiterated a hard stance on tariffs but also signaled willingness to lower them eventually. Still, he maintained that the US is “losing nothing” by not trading with China, citing domestic resilience.

China deploys major stimulus to counter trade shock

In a coordinated response to mounting economic pressure, the People’s Bank of China (PBOC) announced:

• A cut to the seven-day reverse repo rate from 1.5% to 1.4%
• A 5 percentage point reduction in the reserve requirement ratio (RRR), effective next week
• Combined, the measures are expected to inject ¥1 trillion (~$139 billion) into long-term liquidity

Other targeted actions include:

• Zeroing the RRR for auto finance and leasing companies
• ¥300 billion expansion in tech lending quota
• A new ¥500 billion credit line for elderly care and service consumption
• Easing investment rules for insurers and banks to support equities and small businesses

These measures signal a shift from defending the yuan to prioritizing domestic growth and credit availability. The PBOC stressed that this is part of a “moderately loose” monetary policy aimed at protecting core economic drivers such as tech, consumption, and infrastructure.

Dollar faces potential $2.5 trillion selloff from Asia

While the dollar showed some resilience today, longer-term risks are rising:

• Asian exporters and institutions are sitting on trillions in dollar reserves
• Some analysts estimate up to $2.5 trillion could be offloaded as regional investors seek safety and currency diversification
• This could happen in response to deteriorating trade relations or strategic FX positioning

The Bloomberg Dollar Spot Index has dropped 8% from its February high, and Asian currencies have broadly appreciated. Analysts warn that further selling — especially unhedged positions — could significantly impact dollar strength.

Markets are responding positively to the mere start of US-China negotiations, but the bar for real progress remains high. China’s bold stimulus measures signal urgency in stabilizing its economy, while dollar dynamics reflect a deeper realignment in global capital flows. Investors should remain cautious — this is a tentative reprieve, not a resolution.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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