The Dollar is strengthening while tensions between the United States and China is increasing

By Peter Nurse

The u.s. dollar rebounded on Wednesday, in a context of risk aversion, given the growing tensions between China and the United States about the new law on the security of Hong Kong.

At 11: 00, the u.s. dollar index, which tracks the greenback against a basket of six other currencies, was $ 99,172, up 0.3%, USD/JPY has risen 0.1% to 107,59, while GBP/USD fell 0.2% to 1,2301.

Protests were held Wednesday in Hong Kong, while the national security act – which critics have characterized as a direct attempt to reduce the freedoms unique to the city – was subject to a second reading in the legislative Council of the city.

The american president Donald Trump has promised a u.s. response to the law by the end of the week. Meanwhile, China has responded by threatening to take counter-measures against any us action, including sanctions.

“We are in a general trend of risk taking, but the only thing that can change that is the relationship between the United States and China,” said CNBC Junichi Ishikawa, a strategist senior FX at IG Securities.

“Other problems between these two countries will slow the recent decline in the dollar and could lead to buy dollars as a safe haven”.

At 11: 00, the yuan, often considered a barometer of relations between the two largest economies in the world, has slipped 0.4% to 7,1604 per dollar on Wednesday, bringing its decline in the four weeks to 1%, and nearing its lowest record level of 7,1965 per greenback set last September.

The euro is a different currency to the honour on Wednesday, after that Isabel Schnabel, member of the executive board of the european central Bank, has clearly stated in an interview with the Financial Times that the central bank is ready to act and to use any instrument “if it is judged that the inflation outlook in the medium term has deteriorated”.

“This is another comment similar to that of the governor of the central French did earlier this week, namely that the ECB will act if necessary”, said the analysts of the Danske Bank, in a note to clients. “We believe that this increases the likelihood that the ECB increases the PEPP Program (purchase of emergency of a pandemic) at the meeting of the ECB next week”.

This comes as the latest estimates from INSEE, the national office French statistics, have suggested that the French economy is on the verge of getting 20% in the second quarter as the country emerges from a lock national of coronavirus.

This would mark a sharp deterioration of the recession in France after the second euro-area economy has contracted by 5.8% in the first quarter.

At 11: 00 am, EUR/USD fell 0.2% to settle at 1,0954.

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