FOREX-Dollar finds footing as Sino-U.S. tensions escalate

* Euro, AUD, NZD retreat from milestone peaks
* Investors wary of China's response to Houston consulate
closure
* S. Korea in recession
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, July 23 (Reuters) - The dollar crept off
milestone lows against other majors on Thursday, and held on to
gains against the yuan, as heightened Sino-U.S. tension put a
bit of caution into currency markets.
The United States gave China until Friday to close its
consulate in Houston amid accusations of spying, and President
Donald Trump said it was "always possible" other Chinese
missions could be ordered to close as well. China has vowed to respond and the escalation in tension
between the world's two largest economies sent the yuan CNH=
on its sharpest slide in nearly two months on Wednesday and has
helped the greenback find support in Asian trade on Thursday.
The euro EUR=EBS sat at $1.1571, about 0.3% below a
21-month high of $1.1601, which it hit overnight in the
afterglow of Europe's leaders agreeing on a coronavirus rescue
package.
The Australian dollar AUD=D3 pulled back from a 15-month
peak and was steady at $0.7143, while the kiwi NZD=D3
retreated slightly from a six-month top to sit at $0.6657.
Volumes were lightened by a public holiday in Japan.
"The market is still trying to ascertain whether this
increase in geopolitical tension is going to be enough to derail
the positive vibes we've been seeing," said Rodrigo Catril,
senior FX strategist at National Australia Bank in Sydney.
"Recent history will tell you that the market will tend to
digest this stuff and carry on in its merry way...but a bit of
caution is warranted, and the yuan moving higher is probably the
canary in the coalmine that we need to keep an eye on."
The yuan is a barometer of Sino-U.S. relations and it fell
0.6% to a one-week low of 7.0174 per dollar in offshore trade on
Tuesday.
China's midpoint for the onshore trading band CNY=PBOC was
fixed weaker than expected on Thursday, suggesting there is more
to come in this fresh flashpoint.
Still, the lift to the dollar was pretty modest. It edged
off a four-month low against a basket of currencies =USD to
94.980.
The safe-haven Swiss franc CHF= found support near a
four-month top at 0.9287 per dollar, while the yen JPY= was
rangebound at 107.15 per dollar.
U.S.-China ties have worsened sharply this year over issues
ranging from the coronavirus and telecoms-gear maker Huawei, to
China's territorial claims in the South China Sea and clampdown
on Hong Kong.
The U.S. State Department said the Chinese mission in
Houston was being closed "to protect American intellectual
property and Americans' private information."
Chinese state media said on Thursday that the move was a
political ploy ahead of November presidential elections, and one
source with knowledge of the matter told Reuters that China was
considering closing the U.S. consulate in Wuhan in response.
"It seems escalation is inevitable in the near term," said
Commonwealth Bank of Australia currency analyst Joe Capurso.
"The upshot is CNH is likely to weaken further and broader
currency volatility increase."
Elsewhere the South Korean economy entered recession and
exports posted their worst plunge since 1963. Investors are also expecting weekly U.S. jobless claims, due
at 1230 GMT to hold relatively steady.