FOREX-Dollar gains, yuan slumps on rising Hong Kong tensions

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Markets swing between risk-on and risk-off
* Dollar viewed as safe-haven currency
* Yuan hit by security bill concerns
* Euro eyes details of rescue fund

By Stanley White
TOKYO, May 27 (Reuters) - The dollar edged higher on
Wednesday as worries about the U.S. response to China's proposed
security law for Hong Kong supported safe-haven demand for the
greenback.
The yuan fell to the lowest in more than eight months after
a media report that Beijing planned to expand the scope of its
security legislation, which is likely to increase concerns about
civil liberties in the former British colony.
The euro held gains against the dollar and the pound but
faces a severe test when the European Commission is expected to
release details of a financial rescue fund for the bloc later on
Wednesday.
Financial markets have been caught in a tug-of-war between
optimism and pessimism about the global outlook.
Some investors are betting on a resumption of business
activity following the crippling coronavirus pandemic that
brought the global economy to a standstill, but others worry the
threat of U.S. sanctions against China for its treatment of Hong
Kong could easily worsen risk sentiment yet again.
"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 FX 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 edged up to $1.2322 against the pound on
Wednesday in Asia, pulling away from its lowest level in two
weeks.
The dollar rose to $1.0961 per euro EUR=EBS , also pulling
away from a one-week low.
It bought 0.9665 Swiss franc CHF=EBS in Asia, following a
0.6% loss in the previous session.
The Australian dollar AUD=D3 fell 0.17% to $0.6645, while
the New Zealand dollar NZD=D3 eased to $0.6191 as worries
about U.S.-China tensions hurt demand for riskier assets.
The Aussie and the kiwi are often traded as liquid proxies
for risk because of their close ties to China's economy and
global commodities.
The dollar remained locked in a narrow range at 107.49 yen
JPY=EBS , but the yen rose against the euro EURJPY= and the
antipodean currencies AUDJPY= NZDJPY= on increased
safe-haven demand.
Many of the places that were hardest hit by the coronavirus
pandemic are now allowing more businesses to resume normal
operations, leading to an unwinding of safe-haven bets on
Tuesday.
However, the move faded on Wednesday as Asian stocks and
U.S. Treasury yields fell, showing risk aversion remains.
U.S. President Donald Trump said on Tuesday the United
States will announce before the end of the week its response to
China's planned security bill for Hong Kong. Trump's administration is considering sanctions on Chinese
officials, Bloomberg News reported.
Onshore, the yuan CNY=CFXS fell to 7.1591 per dollar, the
lowest since September 2019.
Beijing has expanded the scope of the draft national
security legislation to include organisations as well as
individuals, media reported on Wednesday. The United States and China have repeatedly clashed over
trade policy, advanced technology, and China's response to the
coronavirus, which originated in the central province of Hubei
late last year.
Another row between the world's two superpowers over civil
liberties in Hong Kong could prompt a return to risk-off trades
that favour dollar gains, declining equities, and rising bond
prices.
Further gains in the euro depend on whether policymakers can
narrow their differences on how to fund an economic rescue
package for the euro zone, traders say.
France and Germany have proposed a 500 billion euro
coronavirus recovery fund that would issue grants to help the
bloc's economic recovery from the coronavirus pandemic.
Austria, Sweden, Denmark, and the Netherlands have opposed
this plan, calling instead for a loans-based approach.
The European Commission is to present its own proposal for a
recovery fund later on Wednesday, which could determine the
near-term direction of the euro.

(Editing by Sam Holmes and Jacqueline Wong)