Euro Retreats from 15-Month High, US-China War in Focus

Euro soared sharply and hit a 15-month high on Wednesday amid investor’s optimism on economic recovery and stimulus package of 750bn euros. However, the European currency didn’t manage to sustain the trend and fell back to 1.154 level amid new tensions between the two largest economies.

United States told China to close its consulate in Houston, while Beijing condemned the US action and announced that they will retaliate.

The dollar index bounced back above 95 levels against the basket of currencies after hitting the lowest level since early March. Although the dollar index grew 0.2% to 95.292, it is still trading around four-month lows.

“That headline triggered some profit-taking, quite an aggressive one in USDCNY, USDCNH,” said Christy Tan, head of markets strategy for Asia at National Australia Bank in Singapore.

Some market pundits are worried that the latest move from the United States could halt the ongoing talks between the US-China.

Meanwhile, other analyst’s claims that the news headline related to Houston consulate would be short-lived and investors will continue buying on economic recovery story.

“For now, investors are still buying into the recovery story despite the building China-U.S. tensions again and for now at least that still seems to be the path of least resistance,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

The Australian dollar also retreated after hitting a new high of $0.7168 against the US dollar. The retreat is mostly blamed on the emergence of new cases in Australia along with the risk of reintroduction of the lockdowns.

The market analysts are betting on the euro versus the US dollar.

“Somehow everything looks a little better for the euro than for the dollar. One-nil for it in the fight against the virus and the recession,” Antje Praefcke, Commerzbank FX and EM strategist, wrote in a note to clients.