The dollar gains amid rising diplomatic tensions
22 May

The dollar gains amid rising diplomatic tensions


Stocks in Asia Pacific fell as tensions between the U.S. and China come under further strain. China is poised to impose a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. The move has sparked concerns that Beijing is tightening its grip on Hong Kong, and there are worries it could trigger another wave of pro-democracy protests. Hang Seng index led losses among the region’s major markets as it plummeted 5.5%, as of its final hour of trading. Shares in Australia also declined, with the S&P/ASX 200 closing 0.96% lower. The Hong Kong dollar was little changed near the top end of its narrow 7.75-7.85 band against the greenback.


European stocks traded lower as ties between the U.S. and China, potentially threatening the “Phase One” trade deal signed earlier this year. The pan-European Stoxx 50 dropped 1.6% in early trade, with banks plunging 3.1% to lead losses as all sectors and major bourses slid into the red. German and French indices opened much lower than yesterday’s close and the dollar rose 0.24% to $1.0901 per euro today, following a 0.3% increase in the previous session.


The dollar gained against major peers as rising diplomatic tensions supported safe-haven demand for the greenback. The dollar bought 0.9716 Swiss franc after posting its biggest gain in more than two weeks. Sterling fell to $1.2171 after data showed a plunge in British retail sales. The Australian dollar fell 0.5% to $0.6517.  Across the Tasman Sea, the New Zealand dollar eased to $0.61. The fresh geopolitical strains also boosted the safe-haven yen up to 107.44 per against the greenback. Japan's currency also rose 0.6% against the Aussie and gained 0.4% against the kiwi due to safe-haven inflows.


Britain’s government borrowed more than it has done in any month on record in April, pushing up a measure of public debt to close to 100% of economic output, while retail sales fell by a record 18% as the coronavirus crisis hammered the economy. Britain’s economy could be facing a slower recovery from its deep coronavirus slump than the Bank of England suggested this month and all stimulus options, including sub-zero interest rates, should be considered, said the BoE deputy governor Ramsden. UK stock markets fell more than 1% today as a coronavirus-induced lockdown hammered retail sales in April, while Asia-focussed banks tumbled after China said it would impose new national-security laws on Hong Kong. The blue-chip FTSE 100 was down 1.8% to 5906.


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