FOREX-Dollar in narrow range as focus shifts to Trump's China response

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Trump plans China news conference for Friday
* Risk-off trades did well this week, outlook uncertain
* More yuan weakness possible over Hong Kong spat

By Stanley White
TOKYO, May 29 (Reuters) - The dollar was hemmed into a
narrow trading range on Friday as traders' focus shifted to U.S.
President Donald Trump's response to China's passage of a
national security law for Hong Kong.
The yuan pulled away from a record low in offshore trade,
but investors remain nervous ahead of Trump's announcement later
on Friday of policy moves that could ignite a diplomatic row
between Washington and Beijing.
The greenback was on course for a weekly loss against major
currencies as progress in lifting coronavirus lockdowns and
stimulus plans in Europe weakened demand for safe havens, but
the mood could quickly worsen if Sino-U.S. tensions increase.
"At the moment, hopes for economic recovery are strong, but
I expect this to gradually fade to increased concern about the
U.S.-China relationship," said Minori Uchida, head of global
market research at MUFG Bank in Tokyo.
"When that happens, there will be more risk-off trades,
which supports buying of both the dollar and the yen."
The dollar stood at $1.1073 per euro EUR=EBS in Asia on
Friday, close to its lowest since March 30.
The common currency was headed for its second weekly gain
against the greenback as the EU's announcement of a
750-billion-euro coronavirus recovery fund fuelled optimism
about the euro-zone economy.
The dollar last bought 0.9644 Swiss francs CHF=EBS , on
course for a 0.7% weekly decline.
The greenback was little changed at 107.67 yen JPY=EBS .
The Australian dollar AUD=D3 bought $0.6630, close to its
highest in more than two months, while the New Zealand dollar
NZD=D3 traded at $0.6204, near its strongest since March 11.
The Aussie and the kiwi were on course for weekly gains as
investors cheered the gradual re-opening of business activity in
the two antipodean economies.
China's parliament on Thursday approved national security
legislation for Hong Kong that Western countries fear could
erode the city's freedoms. Trump, who has vowed a tough U.S. response, told reporters
he would hold a news conference on China on Friday.
The risk is Hong Kong could lose some of the special
privileges in enjoys under U.S. law, which would threaten its
status as a global financial hub.
The potential stand-off has stirred memories of last year's
bruising Sino-U.S. trade war, which weighed on the global
economy and roiled financial markets.
Offshore, the yuan CNH=D3 traded at 7.1725 per dollar,
near a record low of 7.1966 reached on Thursday.
Investors will closely watch the opening of the onshore yuan
and moves in Chinese stocks to gauge market sentiment before
Trump's announcement.
This week the euro led the charge against a weakened dollar
after EU policymakers unveiled fiscal stimulus combining grants
and loans intended to ease dissent among euro-zone countries.
Analysts say the euro may struggle to extend its gains,
because fiscally conservative member states may still push to
alter the plan.
Some traders will focus on the release of German retail
sales and EU consumer prices later on Friday to measure the
health of the euro-zone economy.
Elsewhere, the pound GBP=D3 held steady at $1.2317.
Sterling was on course for its second weekly gain, supported by
broad selling in the dollar this week.
However, sentiment for the pound has been somewhat negative
due to calls for the resignation of an influential aide to
British Prime Minister Boris Johnson, lack of progress in EU
trade talks, and speculation about negative interest rates.