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Euro Forex Market Retreats as US-China Tension Mounts

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  • Dollar Safe Haven Returns on Taiwan Visit
  • Euro & Pound Both Losing Ground
  • Tension Impacts Stocks

The US Dollar regained strength on Tuesday starting the week in a dominant position as the travel of Nancy Pelosi to Taiwan sent shockwaves around the geopolitical world. This move by the House Speaker was somewhat expected but unannounced and has created enough uncertainty to drive up the USD again at the expense of other currencies. On Wall Street, the same is true as markets dipped back following her arrival in Taiwan earlier today. 

Dollar Security Sought by Traders

After leveling off in recent weeks, the Dollar surged again on Tuesday as its safe-haven appeal shone through. The risk-averse environment created by the surprise visit of House Speaker Nancy Pelosi caused this move with China having previously warned against such a visit. They again spoke out today against what Beijing terms an “extremely dangerous” move, warning that the US is “playing with fire”. Mrs. Pelosi indeed has another perspective on the visit. 

Regardless of opinion, there is no doubt that the largely unexpected move which has not been supported by American President Biden, has sparked fury in China and created more turmoil in a geopolitical landscape already ravaged by the ongoing Russia-Ukraine conflict. Eyes will be on the next move of the two superpowers in response but little is good for the global markets as uncertainty usually provokes volatile movements. 

EUR & GBP Both Struggle With Aftermath

The main losers among those trading forex today were the Euro and Pound traders. Both major currencies had been moving in a positive direction in recent days as some degree of positivity returned to sentiment following a very challenging period. This has reversed in the Tuesday session as fears over the consequences of the Taiwan visit have unnerved the market. Fears of a global recession also continue to dominate the headlines.

The Euro moved lower against the Dollar to below 1.02 at certain points. The common currency then strengthened again slightly before the end of the trading session. The Pound also struggled, falling below 1.22 after having peaked at a multi-week high above 1.23 on Monday.

Stocks Also Feel Geopolitical Pressure

Stocks have slipped again on Tuesday as not only forex brokers battled against challenging sentiment in the market. Hawkish comments from the Fed, as well as China-US tensions, have created a delicate trading environment. Stocks already started the week by slipping back slightly. This movement has not been helped by comments from several Fed policymakers in regard to inflation and interest rates. The general feeling is that rates still have some way to rise. 

The S&P 500 dropped more than 0.5% on the day having been lower earlier in the session and mounting a small recovery. The Nasdaq was also down slightly, losing 0.16% though with some positive gains in certain names. The biggest decline of the day came from the Dow Jones which shed more than 1%.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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