U.S. sanctions stun market
Stocks and the dollar turned around in late morning trade, after the Commerce Department announced the sanctions in connection with a dispute over paper subsidies.
"We haven't seen the exact percentages yet, but this represents a 20-year break in U.S. trade policy and potentially a watershed in US/Chinese trade relations," said Brian Dolan, director of research at Forex.com. "The obvious impact is going to be felt in dollar/yen which is already collapsing."
The sharp drop in the dollar reflects concerns that China may sell, or simply stop buying, U.S. assets -- mostly Treasury bonds -- which could lead to a spike in interest rates and further weaken a slowing U.S. economy. There are also concerns that higher Chinese import prices might further hurt consumption. See Currencies.
"Anti-China protectionist legislation will backfire -- resulting in the functional equivalent of a tax hike on the U.S. consumer, as well as reduced Chinese demand for U.S. Treasurys," said Morgan Stanley chief economist Stephen Roach said in research note earlier Friday.
The sanctions against China "could restrict the market, if it becomes more of a battle," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank