Sterling fell to a fresh 2018 low today, as concerns about an escalation in the trade dispute between the world's two biggest economies weighed on risk sentiment.
With all eyes focused on the Bank of England's policy decision on Thursday, in which it is expected to unveil its monetary policy stance for the rest of the year after a run of mixed data, investors cut bets on the pound.
Sterling edged 0.3% lower to $1.3204 today, its lowest since late November.
Perceived safe havens such as the Japanese yen and the Swiss franc got a boost against the dollar.
The greenback was broadly stronger against a basket of currencies after US President Donald Trump threatened to impose a 10% tariff on $200 billion of Chinese goods, ratcheting up a trade dispute with Beijing.
Commerzbank strategists said if the trade dispute were to escalate further, the dollar would be the ultimate beneficiary because costlier imports would push inflationary pressures higher, forcing the US Federal Reserve to raise interest rates quicker than expected.
Against the euro, sterling was broadly flat around 87.67 pence.
No economists polled by Reuters expect the Bank of England to raise rates on Thursday.
Some are getting cold feet about their forecasts for a rate rise in August, which would be only the central bank's second increase since the 2008 financial crisis.
