The US dollar is likely to experience some sharp moves this week as US President Donald Trump get ready to introduce another $200 billion worth of tariffs on Chinese goods.
But in early morning trading so far, the currency market is relatively quiet with investors afraid to take positions while the await the upcoming news on sanctions.
"Trade wars continue to dominate investors' minds and markets are wary of taking big positions, but overall there is little going on in currency markets," said Manuel Oliveri, a currency strategist at Credit Agricole in London.
China is not expected to take the new trade tariffs lying down, are expected to retaliate with more of their own, and may even refuse to participate in upcoming negotiations with the US that would supposedly lead to some common ground and a de-escalation of the trade wars currently in operation.
If they do pull out of talks the US dollar is likely to see some significant gains as investors flee to the greenback as a safe haven currency.
"Further escalation looks very likely in which the rate will likely be raised to 25 per cent and more US tariffs threatened, while China may potentially pull out of trade talks entirely and escalate on the new front of outright export restrictions," JPMorgan analysts said in a morning note.
An interest rate hike this month from the US Federal Reserve is also expected to support the US dollar in the nearest future as investors seek out the higher yielding currencies.
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