US-China tensions rise over Hong Kong worries

David Hobart

Tensions between the US and China were up on Wednesday – leading to a consequent rise in both the US dollar’s fortunes and the fortunes of the safe haven Japanese yen.

Despite efforts from both sides to resolve the ongoing trade war, unresolved issues have been bubbling under the surface for weeks.

However, the tensions between the two countries were up on Wednesday for two distinct reasons.

The first was the move by President Donald Trump to hike up tariffs on certain Chinese goods – a move which has been feared for a while by the markets, which appear to want a swift return to free trade.

A trade deal is supposed to be in the works, and for a long while a “phase one” agreement was believed to be ready to go.

However, the conference in Chile at which this may have been able to be signed was suddenly pulled.

There has been no consensus as to whether the two sides will be able to agree on a deal in the future.

While some analysts appeared to believe that there was a chance of the deal getting through before 2019 was out, there are no concrete plans for that to happen.

The issue was further complicated by the discussion of a US Senate bill which supports human rights in Hong Kong.

China responded to this American political development by telling the US it should not interfere in the ongoing saga in Hong Kong, which has seen extended protests recently.

The perceived damage this all did to chances of a trade deal appeared to cement the position in the markets of the best known safe haven currency, the Japanese yen – although there was no huge spike in demand to note.

The yen was up by 0.1% in its pair against the US dollar.

The US dollar index – which tracks the currency against a wide range of other global currencies in an attempt to work out how it is performing – was up by 0.1%.

The same rise was observed in its pair with the single European currency.

Elsewhere, currencies which often derive higher value from the global trading world – such as the Australian dollar – were down.

Both it and the dollar of its close neighbour New Zealand were down by almost half a percentage point in their pairs with the US dollar – a move which reflected not just the damage the trade battle is having on trade-sensitive currencies, but also on the Asia-Pacific region in general.

In Europe, the Norwegian crown revealed itself to be one of the worst losers of the day in the currency markets.

It was seen at a loss of 0.9% in its pair against the US dollar.

Against the single European currency, it was down by 0.7%.

Across the border in Sweden, losses were also noted – although the losses in the SEK/USD pair were not nearly as bad.

That pair was down by 0.4%, although the drop against the euro was to the same extent as Norway’s at 0.7%.

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David Hobart
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