Yen Rises and Yuan Falls due to Hong Kong Tensions

Alan Penny

28 November 2019

3 min read

China US trade war represented by chess pawns

  • President Trump passes legislation in support of Hong Kong protesters
  • Yen rises as investors retreat to safe-haven currencies
  • US dollar flat due to worries over increasing tensions with China

Thursday saw the yen rise as investors moved away from risky currencies, such as the yuan, amid worries that tensions could rise between the United States and China.

President Donald Trump formally backed the protesters in Hong Kong by passing legislation to this effect.

On Wednesday, President Donald Trump formally backed the protesters in Hong Kong by passing legislation to this effect. This could cause complications with the US – China trade deal.

The Hong Kong Human Rights and Democracy Act of 2019 requires the federal government to levy sanctions against any Hong Kong and Chinese officials engaged in any abuse of human rights. Furthermore, the law requires the Department of State and other federal agencies to review Hong Kong’s political status every year.

The review is meant to determine whether Hong Kong should be allowed to maintain the favorable trading conditions it has with the United States, or whether it should fall under the same conditions imposed on China.

China has vehemently protested against the law, essentially accusing the United States of meddling. In response to the legislation being passed into law, the Chinese foreign ministry threatened that they would take strong countermeasures.

They also stated that any attempt on the part of the United States to get involved in the situation in Hong Kong is “doomed to fail.”

Hong Kong has been experiencing large demonstrations since the beginning of March, protesting against the Fugitive Offenders amendment bill. The amendment would allow China to undermine Hong Kong’s autonomy and civil liberties.

Le Yucheng, China’s Vice Foreign Minister, also voiced displeasure in a discussion with Terry Branstad, US Ambassador to China. He stated that what the US did represented “serious interference in China’s internal affairs and a serious violation of international law.”

Conversely, Hong Kong’s streets were filled with protesters waving American flags on Thursday. Some protesters could even be seen holding signs thanking President Trump and the United States for supporting them. This led to the offshore yuan sliding as investors become more concerned that the rising tensions will affect the trade deal.

Yen rises despite declining retail sales

The yen rose by approximately 0.12% against the US dollar to trade at 109.42. This is despite the fact that retail sales in Japan dropped by 14.4%, which was far higher than the expected 10.4%.

Yukio Ishizuki, a Daiwa Securities forex strategist, explained that investors are buying the yen because of the issues between the US and China. Even the US dollar felt the pressure as it traded flat, despite positive economic data.

The Commerce Department released a GDP that increased by an annualized rate of 2.1%, compared to the initial estimates of 1.9%. Furthermore, durable goods saw an increase of 0.6%, compared to the decline of 1.4% they experienced the previous month.

The Swiss franc also benefitted from the market’s uncertainty. It managed to recover slightly from the 2-month low it was trading at against the dollar. Thus, the USD/CHF was trading at 0.9990. The CHF was also helped by positive Swiss economic data, including a Q3 GPD increase of 0.4%.

Other assets considered to be safe havens also inched higher. For example, gold was trading at $1,456.66, indicating an increase in price of 0.16%.

Written By
Alan Penny

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