Currency markets flip to ‘risk-off’ after US-China tensions escalate
Risk appetite in currency markets diminished in early London trading on Wednesday, with the dollar partially erasing its overnight losses, after China’s foreign ministry said the United States told China on July 21 to close its consulate in Houston.
The dollar rose and the euro fell, reversing the “risk-on” trend of the previous 24 hours, after China’s foreign ministry said at around 0730 GMT that it had received the abrupt notification -- an escalation of recent U.S.-China tensions.
Beijing said it strongly condemns the move and threatened retaliation.
Markets had been firmly pro-risk overnight, boosted by hopes for an economic recovery, with the euro hitting an 18-month high of $1.1547 after European leaders agreed on a massive stimulus plan for the euro zone.
But these moves reversed after China’s statement, with the euro retreating to $1.1521 by 0804 GMT.
The dollar index, which had hit its lowest since early March on Tuesday evening on hopes for an economic recovery, erased some losses as risk appetite worsened on Wednesday. It was up 0.2% at 95.292, still trading close to four-month lows.
China’s offshore yuan weakened past 7 per dollar on the news and was last at 7.0028.
Reference: CNBC
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