* Dollar index hits fresh 4-month low
* Yuan recovers to just below 7 per dollar
* Euro holds 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, resuming
its slide as investors took a wait and see approach to tensions
between the United States and China.
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 the weaker side of the 7 per dollar mark.
CNH=
"Retaliation for the Houston closure is now widely expected
- the relative severity of which will offer markets some
guidance on Beijing's engagement strategy into the 2020
elections," said UBS strategists in a note to clients.
"U.S.-China tensions generate volatility, but it is the
stimulus and recovery dynamic that we expect will prove more
dominant."
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.
The U.S. State Department said the Chinese mission in
Houston was being closed "to protect American intellectual
property and Americans' private information."
Chinese state media said on Thursday the move was a
political ploy ahead of November presidential elections, and one
source with knowledge of the matter told Reuters China was
considering closing the U.S. consulate in Wuhan in response.
"If China does limit its retaliation to closing the Wuhan
consulate, the market will probably take it in stride, but if
China instead decides to do something that escalates the
tensions between the two countries, we could quickly switch to a
'risk-off' mood," said Marshall Gittler, head of investment
research at BDSwiss Group.
Against the safe haven Japanese yen, the dollar was flat at
107.15. JPY=
The euro EUR=EBS was at $1.1573, 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 $0.7151, while the kiwi NZD=D3 was just below
Wednesday's six-month top of $0.6678.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Dollar's performance in 2020 https://tmsnrt.rs/2E8xdqJ
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>