LONDON, May 22 — The dollar rose today in overnight trading and extended its gains in early London trading, after US-China tensions boosted demand for safe-haven currencies.
US President Donald Trump said that Washington would react “very strongly” to new Chinese legislation on Hong Kong, which could lead to new pro-democracy protests.
Sino-American relations have worsened during the coronavirus pandemic. The US has ramped up its criticism of China, blaming it for the spread of the virus, which originated in Wuhan.
Last week, the US government moved to block global chip supplies to blacklisted telecoms equipment maker Huawei Technologies. The US Senate also passed legislation that could prevent some Chinese companies from listing their shares on US exchanges.
“As “trade conflict” also means “USD strength” (at least that was the market interpretation so far) the risk-on related USD weakness seen over the past days comes to a (preliminary) end,” wrote Ulrich Leuchtmann, Commerzbank’s head of FX and commodity research.
“That means for EUR-USD that the excursion above the 1.10-mark was short-lived and will not be repeated for now,” he added.
Against a basket of comparable currencies, the dollar was last at 99.7, up 0.3 per cent since New York’s close. After two consecutive weeks of gains, the dollar looks set to end this week down around 1 per cent.
The euro was down around 0.3 per cent against the dollar, at US$1.092, having hit a three-week high of US$1.1008 on Thursday. The Japanese yen was up around 0.2 per cent against the dollar, at 107.36.
The offshore Chinese yuan hit a two-and-a-half-week low of 7.151 in early London trading, last down around 0.2 per cent on the day .
Commodity currencies fell as investors sought safety, with the riskier Australian dollar down 0.7 per cent and the New Zealand dollar down 0.3 per cent, against the US dollar.
Oil prices fell today after China failed to set an economic growth target for 2020, sparking concern that the coronavirus pandemic will cap fuel demand in the world’s second-largest oil user.
“The fall in the oil price weighed on NOK overnight, making it the worst performing European currency (even underperforming RUB),” wrote ING strategists in a note to clients.
But, they added, the fall in Brent oil is a correction rather than the start of a new trend, and the Norges Bank is finished cutting interest rates, so the outlook is positive for the Norwegian crown for the second half of 2020.
The Norwegian crown was last down around 1 per cent against both the US dollar and euro, its weakest in five days. — Reuters