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Yen gains, yuan falls as Hong Kong tensions muddy trade progress

Credit: REUTERS/Truth Leem

The safe-haven yen rose against the dollar after U.S. President Donald Trump signed into law support for anti-government protesters in Hong Kong, which could complicate efforts to end the U.S.-China trade war.

By Stanley White

TOKYO, Nov 28 (Reuters) - The safe-haven yen rose against the dollar after U.S. President Donald Trump signed into law support for anti-government protesters in Hong Kong, which could complicate efforts to end the U.S.-China trade war.

That caused the yuan to fall in offshore trade on mounting worries that months of often violent protest against Chinese rule of the former British colony potentially will worsen already fractious relations between Washington and Beijing.

The Swiss franc and gold also rose on Thursday as investors sought other safe harbours due to concerns about a potential increase in geopolitical risk.

In response to the U.S. move, China's foreign ministry said it resolutely opposed the law and threatened to take firm counter-measures, complicating efforts to scale back a 16-month long trade war between the world's two-largest economies.

"The yen is being bought because of the news about Trump signing the Hong Kong bill," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

"Algorithmic trading could push the yen up further, but the dollar's losses will be limited because we've had positive U.S. economic data, which has lifted sentiment."

The yen JPY=EBS rose around 0.2% to 109.39 versus the dollar on Thursday in Asia, rebounding from a six-month low reached Wednesday after U.S. economic growth was revised up in the third quarter.

In the offshore market, the yuan CNH=D3 fell 0.16% to 7.0255 per dollar. In the onshore market, the yuan CNY=CFXS was little changed at 7.0287 versus the greenback.

China's foreign ministry also said on Thursday that U.S. attempts to interfere in Hong Kong are "doomed to fail."

The U.S. bill signed on Wednesday requires the State Department to certify, at least annually, that Hong Kong retains enough autonomy to justify favourable U.S. trading terms, which have helped it maintain 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 it 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 rebuke 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.

Investor uncertainty benefited the Swiss franc CHF=EBS, which pulled back from a two-month low to trade at 0.99875 against the greenback.

Gold XAU=, another safe haven bought in times of uncertainty, rose 0.22% to $1,457.36 per ounce.

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.

Separate data showed new orders for key U.S.-made capital goods increased by the most in nine months in October and shipments rebounded.

(Reporting by Stanley White; Editing by Lincoln Feast and Sam Holmes)

((stanley.white@tr.com; +81 (0)3 4563 2799; twitter.com/stanleywhite1 ;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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