Euro succumbs to selling after US threat of more China tariffs

LONDON: The euro fell on Thursday after Washington threatened 10 percent tariffs on $200 billion worth of Chinese imports in an escalating trade conflict that has heightened worries that the euro zone economy could be hurt.

The biggest fallers were the Chinese yuan, which skidded towards an 11-month low, and the Australian dollar.

The safe-haven Japanese yen slipped but nervousness in broader currency markets was less intense than in equity markets, where there were hefty falls in Asia and Europe.

Traders focused their attention on where a ratcheting of Sino-US trade tensions will have the biggest impact: in China and in Asia, where countries including Australia depend on Chinese demand for their exports.

The news of more possible tariffs comes days after Washington imposed 25-percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China.

After initially showing little movement, the euro succumbed to selling pressure and was 0.4 percent lower at $1.1701 against the US dollar. The dollar index rose 0.3 percent to 94.415.

"I think it was a delayed reaction to the news of US tariffs. Arguably the euro/dollar should be trading lower," Christin Tuxen, an FX strategist at Danske Bank in Copenhagen, said, citing the euro zone's greater vulnerability to global trade flows than the United States.

The offshore Chinese yuan fell as low as 6.7035 per dollar , down more than half a percent from late US trading and towards its 11-month low of 6.7344 touched on July 3.

The Australian dollar slipped as much as 1 percent to $0.7384 from this week's peak of $0.7484, which was its highest level for more than three weeks.

While the US dollar moved higher on Wednesday, its rally since mid-April has run out of steam in recent weeks.

"We think the dollar has neared a peak. Cycle-wise, valuations on the dollar is more expensive than its peers and the economic momentum is more favourable for Europe and Japan," Russell Investments global head of investment strategy, Andrew Pease, said.

The yen had strengthened in Asian trading but fell back and was down 0.2 percent versus the dollar at 111.24 yen in Europe. The dollar had hit a seven-week high of 111.35 yen on Tuesday.

US Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 percent on additional Chinese imports worth $200 billion.

US President Donald Trump said last week the United States may ultimately impose tariffs on more than $500 billion worth of Chinese goods - roughly the total amount of US imports from China last year.

Sterling fell to $1.3228, 0.3 percent lower on the day, although the fall was limited by news that UK Prime Minister Theresa May had the support of senior ministers, calming markets after major cabinet resignations this week.

The Canadian dollar weakened 0.4 percent to C$1.3164 ahead of an expected interest rate increase by the Bank of Canada. Traders will be scanning the central bank's comments for the outlook on inflation and monetary policy.