EUR/USD Hits New Yearly High as China/EU Announce Bilateral Investment Deal

EUR/USD Talking Points:

  • Negotiations Over Investment Deal Began in 2013
  • Deal Paves Way for Increased Investment and Trade Between China and the EU
  • Completion of Deal Raises Questions Over China/EU/US Relations

China/EU Announce Agreement Over Terms of Joint Investment Deal

Chinese President Xi Jinping and European Commission President von der Leyen announced agreement to the terms of the Comprehensive Agreement on Investments (CAI) this morning. The CAI will provide a uniform framework for trade and investment between China and the EU, replacing the bilateral agreements between China and individual EU member states.

Negotiations for the CAI began in 2013 and were marred with slow progress and delays. In 2019, leaders on both sides agreed to complete a deal by the end of 2020. Whether or not this self-imposed deadline could be reached was in doubt for most of the year. Significant concerns over China’s alleged human rights violations had been voiced by EU officials, threatening any agreement, but increased efforts from both sides pushed the negotiations into their final stage towards the end of the year.

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The EU’s key desire for the deal was to ensure a level playing field between the two economies. Other main components of the investment agreement include:

  • The creation of new opportunities and improved conditions of market access for both Chinese and EU investors
  • Increases in regulatory transparency, predictability, and legal certainty
  • Establishment of guarantees regarding the treatment of investors from both economies
  • Support for sustainable development initiatives
  • Establishment of effective enforcement of commitments through new dispute settlement mechanisms

Jinping said that the investment deal “shows China’s determination and confidence in opening up” to the outside world. While the full text of the deal has not yet been released, the main components of the deal should encourage investment between the two.

The bilateral deal between China and the EU may signal further trouble for the United States as the new administration looks to continue a harder stance toward China. EU officials note that the deal with China establishes similar trade and investment standards between the two as the US established with China in the Phase One Trade Agreement signed by the Trump administration.

Biden’s administration has specified the desire for collaboration with the EU and other major economies on trade deals to pressure China to conform to global standards. China’s push to establish a trade with the EU shortly before the Biden administration comes into power could threaten these desires and drive further geopolitical tensions between the two largest economies.

EUR/USD, EUR/USD 2020, Euro Dollar

Chart Prepared by Izaac Brook, Source: TradingView

The Euro rose to fresh two-year highs against the Dollar this morning, briefly breaking through 1.2300 for the first time this year. Since March of 2020, the Euro has continued to strengthen against the Dollar, surging from 1.0636 to 1.2310. EUR/USD now trades at its highest level since April 2018.

— Written by Izaac Brook, DailyFX Research Intern

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