Yen rises, dollar flat as Trump signs the Hong Kong bill

On Thursday, increasing worries about the Sino-US tensions caused the safe-haven prices to rise, while the dollar stayed near flat.

The USD/JPY pair dropped 0.1% to 109.45 by 05:20 GMT.

The U.S. President Trump signed into law two bills that support protesters in Hong Kong. The move could potentially complicate ongoing trade talks in China.

China, responding to the move, its foreign ministry said they firmly opposed the law and threatened to take firm retaliatory measures. They said any attempt to interfere with Hong Kong was “doomed to fail”

Chinese and Hong Kong Stock fall

Today, the Chinese and Hong Kong stocks dropped following the news. The yen traded modestly higher.

Meanwhile, consumer data showed that Japan’s retail sales plunged 14.4% in October from the previous month. It was more than the expected decline of 10.4%.

“Traders are buying the yen because of the news about Trump signing the Hong Kong bill,” said Yukio Ishizuki in a Reuters report.

Yukio is the foreign exchange strategist at Daiwa Securities.

Algorithmic trading might push the yen further up, but positive U.S. economic data, which has lifted sentiment, will limit the dollar’s losses.

The U.S. Dollar Index last traded at 98.248, changing little from yesterday’s close.

The Commerce Department reported that gross domestic product increased at a 2.1% annualized rate, compared to 1.9% in the first reading. 

In a separate report, durable goods gained 0.6% after falling 1.4% in the prior month.

The AUD/USD pair slipped 0.1%, while the NZD/USD pair inched up 0.1%.

Yuan drops as Hong Kong tensions heighten risk aversion.

Trump move to sign into law the two bills pushed the offshore yuan lower on worries that this could worsen U.S. and China trade relations.

In the foreign market, the yuan fell 0.18% to 7.0269 per dollar. In the onshore market, the yuan remained at 7.0280 versus the USD.

The Hong Kong law requires the State Department to certify, at least annually, that it retains enough autonomy to justify favorable U.S. trading terms. The terms have helped Hong Kong maintains its position as a global financial hub.

The law also threatens sanctions for human rights violations in Hong Kong, which has been rocked by months of civil unrest in response to what protesters say is an erosion of freedoms since reverting to Chinese rule in 1997.

Beijing has denied any undue influence and has blamed foreign governments for meddling in Hong Kong’s affairs.

Many see the U.S. legislation as symbolic, but it has the potential, if implemented, to further rock relations between the United States and China.

Washington’s criticism also comes as U.S. and Chinese negotiators are trying to reach an agreement to de-escalate a trade war, which would remove a huge headwind from the global economic outlook.

The United States and China have imposed tariffs on each other’s goods in a prolonged dispute over Chinese trade practices that the U.S. government says is unfair.

Gold and Swiss franc also rose on Thursday as investors sought other safe harbors amid a potential increase in geopolitical risk.

Investor uncertainty benefited the Swiss franc, which pulled back from a two-month low to trade at 0.9990 against the greenback.

Gold, another safe-haven bought in times of uncertainty, rose 0.16% to $1,456.66 per ounce.

The Aussie dropped to a six-week low of $0.6764. It’s often traded as a proxy for global commodity demand.

The rise in safe havens undermined the dollar, which came into Asian trade on a high after revised data showed U.S. economic growth picked up slightly in the third quarter.