* Offshore yuan stumbles on tensions around Hong Kong
* Euro braces for recovery fund proposals
* Riskier currencies generally lower in cautious session
* Graphic: World FX rates in 2019: http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, May 27 (Reuters) - The U.S. dollar edged higher on
Wednesday and China's yuan hit a near nine-month low as worries
about the U.S. response to China's proposed security law for
Hong Kong injected a more cautious tone into foreign exchange
markets.
The U.S. currency had fallen sharply on Tuesday as strong
risk appetite encouraged investors into riskier currencies, but
that sentiment was much less buoyant in early trading on
Tuesday.
Some investors are betting on a rapid resumption of economic
activity following the crippling coronavirus outbreak, but
others worry the threat of U.S. sanctions against China for its
treatment of Hong Kong could easily worsen risk sentiment again.
Renewed protests in Hong Kong added to the nervous mood.
"Yesterday's risk-on rally is already running out of steam.
That seems quite right, but not just because of the tensions
between the U.S. and China," said currencies analyst Thu Lan
Nguyen at Commerzbank.
Nguyen said the economic outlook remained uncertain even as
countries reopen their economies, not least in predicting how
consumers would behave once they can shop and travel more
freely.
The dollar, measured against a basket of currencies, rose
0.1% to 99.146 =USD .
The euro, which rose sharply on Tuesday, fell 0.2% to
$1.0961 EUR=EBS , as investors waited for the European
Commission to release details of a financial rescue fund for the
bloc.
The European Commission is to present its own proposal for a
coronavirus recovery fund later on Wednesday after a
Franco-German proposal for a 500 billion euro ($547.70 billion)
fund ran into opposition. But it was the offshore yuan that saw the most striking
move. It fell to its lowest against the dollar since September
of last year when the U.S.-China trade dispute was at its most
intense.
The dollar gained 0.4% at 7.1766 yuan CNH=EBS , not far
from the offshore yuan's record low of 7.1975 touched in early
September.
Should the onshore yuan CNY=CFXS fall below September's
lows it would be at its weakest since 2008.
U.S. President Donald Trump said on Tuesday the United
States would announce before the end of the week its response to
China's planned security bill for Hong Kong. "We are in a broad risk-on trend, but the only thing that
can change this is the U.S.-China relationship," said Junichi
Ishikawa, senior foreign exchange strategist at IG Securities in
Tokyo.
"More problems between these two countries would slow the
dollar's recent decline and potentially lead to dollar buying as
a safe haven."
The dollar slipped marginally against Japan's currency, last
trading down 0.1% at 107.49 yen JPY=EBS .
Sterling GBP=D3 and commodity-linked currencies such as
the Australian dollar AUD=D3 fell after Tuesday's jump as
investors turned more cautious.
($1 = 0.9129 euros)
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U.S. dollar vs offshore yuan https://tmsnrt.rs/2M7srKJ
EU 'frugals' formally oppose Merkel-Macron plan for coronavirus
grants slumps to 9-mth low on Sino-U.S. tensions, corporate dollar
demand to announce strong Hong Kong response this week
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