FOREX-Dollar holds firm on China tensions; negative rates talk sinks pound

* China's Global Times flags retaliation for U.S. Huawei
move
* Pound at 7wk low on Brexit worries, talk of negative rates
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, May 18 (Reuters) - The dollar held its ground on
Monday as concern about global tensions with China overshadowed
improving sentiment from easing coronavirus lockdowns, while
talk of negative interest rates pushed the pound to an almost
two-month low.
As Italy announced plans to lift travel curbs next month and
parts of the United States emerged from lockdowns in a boost to
stocks, growing tensions with China in Europe, the United States
and Australia have forced currency traders to raise their guard.
The dollar was a touch firmer against the rangebound
Japanese yen JPY= at 107.25 yen per dollar as Japan slipped
into recession for the first time since 2015. The greenback was steady on most other Asian currencies
after gains last week and flat against a basket of currencies
=USD at 100.380. It held the New Zealand dollar NZD=D3 below
60 cents at $0.5934, just above a three-week low.
The Trump administration's move to block chip supplies to
Huawei Technologies is the latest Sino-U.S. flashpoint, with
markets on edge for a response, after China's Global Times
newspaper flagged possible retaliation. Australia has also run into trade issues, while the leader
of the European Union's largest political alliance is pushing
for a temporary ban on Chinese takeovers of struggling firms.
The Australian dollar AUD=D3 firmed slightly after the
Australian Financial Review newspaper reported conciliatory
remarks from China's foreign ministry, but remained stuck under
65 cents at $0.6425.
"At the fore of market participants' minds is that we are
seeing those (China) tensions just ratcheting higher, so there
has been support for the U.S. dollar on the back of that," said
Commonwealth Bank of Australia FX analyst Kim Mundy.
"Also comments last week from Fed officials around the risks
to the U.S. economy being skewed to the downside, risks around a
second wave of infection, I think that will also continue to
underpin the U.S. dollar this week."
U.S. retail sales crashed 21.6% on a year-on-year basis last
month and 20 million Americans lost their jobs. Federal Reserve Chairman Jerome Powell said it will be a
long road to recovery, even under the best of circumstances, in
a television interview on Sunday. "For the economy to fully recover people will have to be
fully confident and that may have to await the arrival of a
vaccine," he said.
The pound GBP= declined 0.1% to $1.2091, its lowest since
late March, after a week of deadlock with the EU over a
post-Brexit trade deal and the Bank of England's chief economist
considering negative interest rates in a Saturday newspaper
interview. "The economy is weaker than a year ago and we are now at the
effective lower bound, so in that sense it's something we'll
need to look at – are looking at – with somewhat greater
immediacy," he said told the Telegraph. "How could we not be?"
The pound also sat at a seven-week low of 89.45 pence per
euro EURGBP= and a four-month trough of 53.14 pence per Aussie
AUDGBP= .