Trade worries drag euro down to one-week low

Trade tensions between the United States and China, the world's two biggest economies, have exerted downward pressure on euro, which held at a one-week low on Wednesday. 

The single currency has been caught in the cross-currents of an escalating dispute between Washington and Beijing since last week, unable to conclusively rise above the $1.1250 level. "The announcement of the increased trade tariffs has generated negative sentiment about global growth and that is exerting downward pressure on the euro despite the German data," said Nikolay Markov, senior economist at Pictet Asset Management.

U.S. President Donald Trump threatened higher tariffs on billions of dollars of Chinese imports last week, and Beijing responded with planned tariff hikes of its own on Monday. The escalation in the trade dispute comes at a time when the latest data from Germany showed the economy returned to growth in the March quarter as householders spent more freely and construction activity picked up. The single currency was broadly steady at $1.1213 - just above a one-week low of $1.1197 hit in the Asian session and more than 3% below a 2019 high of nearly $1.16 in early January.

Germany's economic figures were a sole bright indicator in an otherwise slate of dismal data. China on Wednesday reported surprisingly weaker growth in retail sales and industrial output for April, adding pressure on Beijing to roll out more stimulus as the trade war with the United States rumbles on. "We expected the data to be worse than last month, but this is going to increase concerns about the state of the Chinese economy. The market will be very nervous and looking out for the PMI data," said Commerzbank FX strategist Esther Maria Reichelt.

The Aussie dollar dropped as low as $0.6922, its lowest level since Jan. 3 when a flash crash in the foreign exchange markets rocked major currencies. Barring that level, the currency was at its weakest in three years and down 0.2% on the day. The weak data gave further impetus to Aussie bears to add to their negative bets with net outstanding short positions still below 2019 highs of above $5.2 billion.

The Aussie is often seen as a proxy for Chinese growth because of Australia's export-reliant economy and China being the country's main destination for its commodities. Domestic data added to the woes, with the pace of growth in Australian wages stagnating. Neighbouring New Zealand saw its currency dip 0.1% to $0.6567. The Chinese yuan itself was slightly improved on the day at 6.8993 per U.S. dollar, but still close to a five-month low hit on Tuesday. 

(With inputs from agencies.)