Euro Forex market pulls back as US-China tension mounts

  • Dollar Safe Haven Returns on Visit to Taiwan
  • The euro and the pound lose ground
  • Tension impacts stocks

The US dollar regained strength on Tuesday starting the week in a dominant position as Nancy Pelosi’s trip to Taiwan sent shockwaves through the geopolitical world. This move by the Speaker of the House was somewhat expected but unheralded and created enough uncertainty to drive the USD up again at the expense of other currencies. On Wall Street, the same is true as markets retreated after he arrived in Taiwan earlier in the day.

Dollar security sought by traders

After stabilizing in recent weeks, the dollar surged again on Tuesday as its safe-haven appeal kicked in. The risk-averse environment created by House Speaker Nancy Pelosi’s surprise visit prompted the move, with China previously warning against such a visit. They spoke out again today against what Beijing calls an “extremely dangerous” move, warning that the United States is “playing with fire”. Ms. Pelosi does indeed have another perspective on the visit.

Whatever the opinion, there is no doubt that this largely unexpected decision, which was not supported by US President Biden, has sparked fury in China and created more unrest in an already ravaged geopolitical landscape. ongoing conflict between Russia and Ukraine. Eyes will be on the next move of the two superpowers in response, but little is good for global markets as uncertainty usually causes volatile moves.

Both EUR and GBP are struggling with the consequences

The main losers among those trading forex today were euro and pound traders. Both major currencies had been moving in a positive direction over the past few days as some degree of positivity returned to sentiment after a very difficult period. That reversed in Tuesday’s session as fears over the fallout from the visit to Taiwan unnerved the market. Fears of a global recession also continue to dominate the headlines.

The Euro moved lower against the Dollar below 1.02 at times. The common currency then strengthened slightly before the end of the trading session. The pound also struggled, falling below 1.22 after peaking at a multi-week high above 1.23 on Monday.

Stocks are also under geopolitical pressure

Stocks fell again on Tuesday as currency brokers weren’t the only ones struggling with tough market sentiment. The Fed’s hawkish comments, along with Sino-US tensions, created a tricky trading environment. Stocks have already started the week pulling back slightly. This move was not helped by comments from several Fed policymakers regarding inflation and interest rates. The general sentiment is that rates still have some way to go.

The S&P 500 fell more than 0.5% on the day after being lower earlier in the session and posting a small rally. The Nasdaq also fell slightly, losing 0.16%, but with positive gains for some names. The biggest drop of the day came from the Dow Jones which lost more than 1%.

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