(Updates throughout, adds fresh analyst comments)
* Dollar index hits fresh 4-month low
* Yuan recovers to trade around 7 per dollar
* Euro holds firmly below $1.16
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Ritvik Carvalho
LONDON, July 23 (Reuters) - The U.S. dollar hit four-month
lows against a basket of peer currencies on Thursday and China's
yuan partially recovered losses from an earlier slide, as
investors took a wait-and-see approach to tensions between the
two countries.
The United States gave China until Friday to close its
consulate in Houston following allegations of
spying. China has vowed to respond, and the escalating tension
between the world's two largest economies sent the yuan CNH=
on its sharpest slide in nearly two months on Wednesday.
That slide reversed on Thursday, with the offshore yuan
bouncing back to trade around the 7 per dollar mark. CNH=
Viraj Patel, FX and global macro strategist at Arkera, said
the main upcoming event will be U.S. Secretary of State Mike
Pompeo's speech on China later on Thursday, provided it goes
ahead, as U.S.-China tensions are the dominant narrative for
dollar trade this month.
"Investors will likely equate further action (not just
rhetoric) to an escalation in tensions and that could dent risk
appetite more broadly if dollar/yuan moves back above the 7
handle," he said.
UBS forecast the yuan - a barometer of Sino-U.S. relations -
would reach 6.8 per dollar by the end of 2020, and 6.7 by the
first half of 2021.
The index that measures the dollar against peer currencies
hit its lowest since March 9. The dollar index has lost nearly
8% since its March 20 peak, when a global dollar funding crunch
saw a surge in demand. It is down 1.5% year-to-date. =USD
U.S.-China ties have deteriorated this year over issues
ranging from the new coronavirus and telecoms-gear maker Huawei,
to China's territorial claims in the South China Sea and Hong
Kong crackdown.
"From an FX perspective, we see signs of fragility offering
a floor to USD for now, although a material escalation in
U.S.-China tensions will be required to trigger a true USD
rebound, which still retains its medium-term bearish arguments,
in our view," said strategists at ING in a note to clients.
Against the safe haven Japanese yen, the dollar was flat at
107.15. JPY=
The euro EUR=EBS was at $1.1581, just below a 21-month
high of $1.1601 hit earlier this week after Europe's leaders
agreed a recovery fund.
The Australian dollar AUD=D3 retreated from a 15-month
peak to around $0.7128, while the New Zealand dollar NZD=D3
was just below Wednesday's six-month top of $0.6678.
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Dollar's performance in 2020 https://tmsnrt.rs/2E8xdqJ
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