Published: June 2nd, 2020
The euro stretched its gains and threatened to touch the two-month highs on Friday, May 29. The surge was later fueled by news that President Trump had responded to China’s threat to heighten control over Hong Kong. Trump ordered the U.S. Department of State to begin reversing the special status that the Chinese semi-autonomous territory enjoys under the American law.
Both the euro and yen made substantial gains on Friday, May 29, after the U.S. President Donald Trump threatened to escalate the tensions between China and his country. Earlier the week before, China had threatened to implement its national security law in Hong Kong, a move that elicited condemnation from Washington.
The witnessed surge of both the yen and the greenback is a sign of the market shifting to more secure assets. A Forex Strategist with the Bank of Singapore Moh Siong Sim said that the market’s reaction showed that it was in a state fearing that the Sino-American tensions could escalate to something more serious.
Moh said that if Trump is serious about the trade tariffs, then such a move can have a substantial impact. However, he was optimistic. It is almost impossible to predict Trump but the strategist thinks that the U.S. president does not have the liberty to act tough this year because of the American economy's awful state.
The offshore yuan climbed 0.17% to trade at 71586 against the greenback. This price is only a few points above the nine-month low of 7.1965 on every dollar that the currency had attained two days earlier on Wednesday, May 27.
The euro, which was riding on the benefits of the €750 billion European Commission’s coronavirus stimulus plan that the block’s senior officials announced early last week, picked up 0.6% to end the day at $1.1140. The currency fell slightly short of getting to $1.1148, a four-month high it last touched on March 30.
The euro’s excellent performance is attributed to the data indicating that the inflation in the Eurozone has slackened. Even though the price growth continued unabated, the crushing cost of oil may have something to do with the European economic condition.
Overall, the slowing inflation shows that the efforts by the European Central Bank policymakers are paying off. The euro started Friday, May 29, with enough vigor to close the second consecutive week of gains and its fourth successive day on the climb. The currency may have been reacting to the enthusiasm that the €750 billion coronavirus stimulus recovery fund injected into the Eurozone economy.
Ricardo Evangelista, an analyst at ActivTrades, said that the European Stimulus Fund is the real driver of the currency since it instills hope that a more functional European Union is possible after the coronavirus pandemic.
Because of the euro’s steady rise, EUR/USD recorded a month-long risk reversal. This precedent shows that betting on the euro to do better vis-à-vis the dollar in options still outstrips the chances of the euro tumbling.
Elsewhere, the greenback bled 0.4% against the yen to stand at 107.16 yen.
While the euro and the yen were gaining, and the dollar sliding on the backdrop of the commotion, the Chinese officials thought up a different strategy. Beijing scoffed at President Trump’s latest threats against China, choosing instead, to strike back with a rhetoric of their kind.
The Chinese officials chose to focus on the ever-swelling street unrest in the U.S. ignited by the death of George Floyd in Minneapolis while in police custody.
Aside from wanting to demote Hong Kong from its advantageous position, Trump promised to prevent an unannounced number of Chinese nationals from coming to the U.S. for graduate studies. He also accused China of a raft of misdeeds that include ripping off Uncle Sam, releasing and abetting the spread of coronavirus, and claiming territory unlawfully.
Though these accusations are expansive, Anna Fifield, a columnist with the New York Post and the publications Beijing bureau chief, thinks that the situation is not so bad. In a piece published on Saturday, May 30, Anna wrote that Trump’s actions are bearable, considering that he did not outline the timeframe of whatever steps the U.S. may take.
Leaving the specifics out of the picture makes the threats vague, Anna said. Besides, Trump fell short of announcing financial sanctions. He did not touch on the first phase of the trade deal that China and the U.S. signed in January.
It is not the first time the Beijing administration and the Chinese media are milking an unfortunate incident in the U.S. for all its worth. Chinese news houses often amplify the social and economic cleavages in the U.S. to help present the Chinese system as the better of the two.
It has applied the same to handle the coronavirus outbreak. A few weeks ago, Beijing emphasized the high death toll and the confusion surrounding the United States’ handling of the epidemic to downplay the shortcomings of the country’s Communist Party (CCP).
An expert on China issues at the Lowy Institute in Sydney, Natasha Kassam, says that the eruption of unrest in the U.S. may serve the needs of China. It is possible that the populous Asian nation planned around Hong Kong losing its special status, she added.
Kassam noted that it is not the first time that the U.S. has threatened to act tough if China went ahead and enforced its draconian law on its Special Administrative Region. Therefore, the threats may not surprise the CCP, and that the party will make its plans as usual. If anything, China prioritized thwarting dissent in Hong Kong more than it values the special privileges that the region enjoys.
The euro and the yen took advantage of the swelling tension between the U.S. and China to make substantial gains. Buoyed by the good news of the Eurozone coronavirus stimulus package, the block’s common currency surged almost 0.2% to record a four-month high.