The US dollar rose on Wednesday, and the Chinese yuan reached an almost nine-month low, as concerns over the US reaction to China’s Hong Kong security law led to a more cautious mood in the foreign exchange markets.
The US currency fell sharply on Tuesday, as a strong risk appetite pushed investors to more risky currencies, but this mood was much less lively at the start of trading on Tuesday.
Some investors are betting on a quick resumption of economic activity after a devastating outbreak of coronavirus, but others fear that the threat of US sanctions against China for treating Hong Kong could easily worsen risk sentiment again.
The resumption of protests in Hong Kong added a nervous mood.
The dollar exchange rate in relation to a basket of currencies increased by 0.1% to 99.146.
The euro, which rose sharply on Tuesday, fell 0.2% to $ 1.0961, as investors waited for the European Commission to publish information on the financial bailout fund for the block.
The European Commission will present its own proposal for a fund for the restoration of coronavirus later on Wednesday after the Franco-German proposal for a fund of 500 billion euros (547.70 billion dollars) faced opposition.
But it was the offshore yuan that saw the most striking move. It has fallen to its lowest level against the dollar since September last year, when the trade dispute between the US and China was most intense.
The dollar rose 0.4% to 7.1766 yuan, not far from the record low of the offshore yuan 7.1975 reached in early September.
If it falls below the September lows, it will be the weakest since 2008.
U.S. President Donald Trump said Tuesday that the United States will announce its response to Hong Kong’s planned China security bill by the end of the week.
“We are in a broad tendency to take risks, but the only thing that can change this is the relationship between the US and China,” said Junichi Ishikawa, senior currency strategist at IG Securities in Tokyo.
“New problems between the two countries could slow the recent fall of the dollar and potentially lead to the purchase of the dollar as a safe haven.”