FOREX-Dollar gains, yuan takes hit as Hong Kong simmers

* 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 and renewed protests in Hong Kong supported
safe-haven demand for the greenback.
The yuan slipped to its lowest in nearly nine months due to
concern about increased tension in Hong Kong and a seasonal rise
in Chinese corporate demand for dollars.
The euro eased slightly ahead of details from the European
Commission 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 $1.2320 against the pound on
Wednesday, pulling away from its lowest level in two weeks.
The dollar rose to $1.0958 per euro EUR=EBS , also pulling
away from a one-week low.
It bought 0.9669 Swiss franc CHF=EBS , following a 0.6%
loss in the previous session.
The Australian dollar AUD=D3 fell to $0.6642, while the
New Zealand dollar NZD=D3 eased to $0.6195 as worries about
U.S.-China tensions hurt demand for riskier assets.
The dollar remained locked in a narrow range at 107.53 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 7.1595 per dollar, the
lowest since September 2019. Chinese companies listed in Hong
Kong bought dollars to make dividend payments to their overseas
investors, which exacerbated the yuan's decline.
"We are approaching half-year end, the traditional dividend
payment season. Normally such conversion should kick in later,"
said a trader at a Chinese bank in Shanghai.
"Yuan depreciation expectations were up again. Some
companies were afraid the yuan could fall further, so they
started to load up on dollars now."
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 could prompt
a return to risk-off trades that favour dollar gains, declining
equities and rising bond prices.
The European Commission is to present its own proposal for
an economic recovery fund later on Wednesday, which could set
the tone for the euro.
France and Germany have proposed a 500 billion euro
coronavirus recovery fund that would issue grants, but Austria,
Sweden, Denmark, and the Netherlands have opposed this plan,
calling instead for a loans-based approach.