Japanese yen gains, yuan drops on trade woes and Hong Kong strife

On Thursday, the Japanese yen became stronger against the USD after sources close the White House told Reuters the deal was unlikely this year.

The news shattered investors’ hopes for a possible deal soon, boosting safe-haven assets.

China’s yuan also fell to a three-week low in the foreign trade following concerns that a deal to roll back tariffs may fail –  dealing a fresh blow to China’s stuttering economy.

Trade woes keep investors on the edge

Political tensions between the U.S. and China have kept investors on edge after news that Trump was likely to sign into law the two bills intended to support anti-government riots in Hong Kong.

Increasing violent protests against Chinese rule has rocked Hong Kong for months. Hong Kong is a former British colony.

The passage of the U.S. law supporting protestors could weaken efforts to secure a trade deal.

“The report from Reuters indicating that we might only see a trade deal next year has been driving some of the yen strength, and that can also be seen as a source of some dollar strength,” said Fritz Louw.

“If you see more negative trade headlines, and with the potential signing in the U.S. of the H.K. human rights bill, the yen should strengthen some more,” he added.

Fritz Louw is a currency strategist at MUFG in London.

At 0825 GMT, the USD was a tad weaker on the day at 108.54 yen.

Japan’s yen rallied almost 1% from more than five-month lows hit against the dollar earlier this month.

The dollar remained at $1.1077 versus the euro and a touch weaker against the GBP at $1.2934.

China is pressing for a more extensive tariff rollback, while the U.S. counters with sharp demands of its own.

Look out for Dec. 15, when the U.S. has scheduled to effect tariffs on some $156 billion in Chinese.

Analysts say trade war headlines have tended to hurt the USD in the past by boosting expectations for interest rate cuts. But the dollar is now likely to benefit from any trade-related jitters in world markets given the Fed’s pause.

Minutes released on Wednesday showed that the Fed is in no hurry to reassess the path of interest rates.

The ECB will release minutes from its October meeting later this session but was not expected to have a major impact on the euro.

Elsewhere, China’s yuan dropped in the onshore market to 7.0450 against the dollar. It was its weakest since Nov. 1, before steadying at 7.0372.

Offshore, the yuan dropped to 7.0533 per dollar – the lowest since Nov. 5 and then pared its losses.