Dollar rises as US-China relations worsen over Hong Kong and tariffs

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The dollar rose on Wednesday and trade-exposed currencies fell after the United States president threatened a trade war escalation and China condemned a US senate measure backing pro-democracy protesters in Hong Kong.

China’s yuan slipped to a new two-week low in overnight trading after US President Donald Trump threatened to raise new tariffs on Chinese imports if ongoing trade negotiations fail.

China condemned the US legislation aimed at protecting human rights in Hong Kong, saying that the US should stop interfering.

After four days of falling, the dollar was up 0.1 per cent against both the euro and a basket of currencies.

“Today the main focus is the trade talks between China and the US and we are seeing risk aversion,” said Piotr Matys, currency strategist at Rabobank. Matys said that the US senate’s bill in support of Hong Kong could complicate progress towards a preliminary trade deal.

Markets had hoped that a partial trade deal to end the 16-month US-China trade war could be signed at a summit in Chile, which was scheduled for mid-November. The summit was cancelled, leaving the outlook for a deal unclear.

Adam Cole, chief currency strategist at RBC Capital Markets said that a preliminary “phase one” trade deal could be reached by the end of the year.

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