EUR/USD Won't Punch Through 1.20 Unless China Allows It
- Written by: Gary Howes
Image © Adobe Stock
The Euro has had a remarkable run already in 2025, but the outlook depends on how much further the Chinese devalue their currency.
This is according to a leading foreign exchange analyst, W. Brad Bechtel, who heads up FX research and strategy at Jefferies, the global investment bank.
"EUR/USD well into 1.1800 now as we sit down this morning does not seem willing to stop for now as it marches towards 1.2000. I had 1.2000 as a potential destination in a world where the Chinese were letting their currency strengthen and other Asian exporters were following suit," he says in a note.
The observation comes as we reach the mid-point of 2025, a year that has been characterised by a substantial dollar devaluation.
In fact, it is the worst start to a year for the USD since 1973, when it became a truly free-floating currency.
A lot is made about U.S. President Donald Trump's policy mix as being the force behind the Dollar.
But not a lot is said about a big facilitator of the declines: China.
"The pace of China's currency adjustment would inform the pace of the USD's speed to the downside which would inform the pace of all the rest of the currency world. EMFX is out front, as you would expect, on this but so is the EUR in a big way and I feel like there is a lot in the price right now," says Bechtel.
Above: The CNY/USD rises, pulling pairs like EUR/USD higher.
China manages the yuan (CNY) through a daily fixing mechanism, and when it allows the yuan to strengthen (i.e., lowers the USD/CNY fix), it typically reflects an intention to absorb more global capital and reduce trade imbalances.
China pursues a stable Yuan policy that favours its exporters by keeping the currency artificially low.
But, in response to Trump's efforts to rebalance U.S. trade, there is a tacit understanding by Chinese authorities that they should let their currency devalue.
This has global consequences as a stronger CNY usually implies broad U.S. dollar weakness. Traders also interpret lower USD/CNY fixes as a signal to sell dollars across the board.
"I would not think we punch through 1.2000 unless USD/CNY's nightly fixing is closer to 7.0000," says Bechtel.
As of July 01, the USD/CNY is at 7.16, and EUR/USD is at
