FOREX-Dollar on front foot as worries about Hong Kong stir risk aversion

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* U.S.-China tensions on the rise
* Risk aversion supports dollar
* Sterling eyes British politics

By Stanley White
TOKYO, May 25 (Reuters) - The dollar edged higher on Monday
as worries about a standoff between the United States and China
over civil liberties in Hong Kong fuelled demand for safe-haven
currencies.
The yuan and the Australian and New Zealand dollars fell as
risk-aversion hit foreign exchange markets.
Sterling was on the defensive after members of British Prime
Minister Boris Johnson's party called for the resignation of an
influential aide for breaking travel restrictions during the
coronavirus lockdown.
A senior White House official has said Beijing's plan to
impose a security law on the former British colony of Hong Kong
could lead to U.S. sanctions, which could worsen an already
tense relationship between the world's two-largest economies.
"The biggest concern is the tension between the United
States and China," said Takuya Kanda, general manager of
research at Gaitame.com Research Institute in Tokyo.
"Things were already bad, and it is likely to get worse
because of the Hong Kong security law. This supports risk-off
trades, which is positive for the dollar and the yen."
The dollar edged up to $1.0887 against the euro EUR=D3 on
Monday, close to its strongest in a week.
The dollar bought 0.9729 Swiss franc CHF=EBS , also close
to a one-week high.
The greenback held steady at 107.72 yen JPY=EBS .
In onshore trade, the yuan CNY=CFXS eased slightly to
7.1422 per dollar, approaching the lowest in more than seven
months.
Trading may be subdued on Monday with financial markets in
Singapore, Britain and the United States closed for public
holidays.
China's proposed national security legislation for Hong Kong
could lead to U.S. sanctions and threaten the city's status as a
financial hub, White House National Security Adviser Robert
O'Brien said on Sunday. Hong Kong police fired tear gas and water cannons to
disperse thousands of people who rallied on Sunday to protest
Beijing's national security law. Washington and Beijing are also at loggerheads over Chinese
companies' access to advanced technology and criticism of
China's response after the novel coronavirus emerged late last
year in Hubei.
The threat of sanctions over Hong Kong risks a repeat of
last year's damaging trade war between the United States and
China.
The British pound GBP=D3 was little changed at $1.2175.
Against the euro, sterling traded at 89.46 pence EURGBP=D3 .
Johnson backed senior adviser Dominic Cummings on Sunday,
despite calls from within his Conservative Party for the aide to
resign.
Cummings, the architect of the 2016 campaign to leave the EU
and widely considered to be Johnson's most influential
strategist, came under pressure after reports he travelled to
northern England from London during a nationwide lockdown in
March when his wife was ill with COVID-19 symptoms.
The Australian dollar AUD=D3 gave up early gains to trade
at $0.6528 as risk aversion offset optimism about the country's
emergence from coronavirus lockdowns.
In New South Wales state, which includes the city of Sydney,
children returned to school full-time on Monday, allowing many
parents to work from their offices. Australian states are pressing ahead with a three-stage plan
to remove most social restrictions imposed by July.
Across the Tasman Sea, the New Zealand dollar NZD=D3
drifted lower to $0.6093.