FOREX-U.S.-China tensions jolt yen to one-month high

* China tells U.S. to close Chengdu consulate
* Yen gains, AUD and NZD retreat from recent peaks
* Strong euro has dollar headed for largest weekly drop
since June
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, July 24 (Reuters) - A slide in the dollar paused
and the safe-haven yen rose to a one-month high on Friday, as
Sino-U.S. tensions escalated after China ordered the United
States to shut its Chengdu consulate in retaliation for the
closure of its consulate in Texas.
The soaring euro was steadfast, but anxious investors pushed
the Australian and New Zealand dollars from multi-month peaks,
roused the languid yen from its recent range and had the yuan
under pressure at a two-week low. Equities also fell.
China's foreign ministry said it told the U.S. embassy on
Friday morning to close its consulate in the southwestern city
of Chengdu, days after Washington abruptly ordered the closure
of the Chinese consulate in Houston. Earlier on Thursday U.S. Secretary of State Mike Pompeo cast
Sino-U.S. relations in starkly confrontational terms.
"If we bend the knee now, our children's children may be at
the mercy of the Chinese Communist Party, whose actions are the
primary challenge today in the free world," he said.
While Asian trading volumes were lightened by a public
holiday in Japan, the escalating tensions lifted the yen JPY=
to 106.38 per dollar, its strongest since late June.
"The market is taking it as a rise in tension...but it's an
in-kind reaction rather than a provocative action," said Moh
Siong Sim, FX analyst at the Bank of Singapore
"So there is this moment of nervousness. But if it stops
here, the market will get used to the idea that we'll have a lot
of tough talk but stop short of outright escalation into the
tariff arena."
The Australian dollar AUD=D3 was down a fifth of one
percent on the session at $0.7086. It is ahead 1.3% for the
week, but almost a cent below a 15-month high hit on Wednesday.
The New Zealand dollar NZD=D3 was at $0.6625, just under a
7-month high of $0.6690 touched on Thursday. AUD/
The safe-haven Swiss franc CHF= also hit a four-month peak
of 0.9239 per dollar. Weaker-than-expected U.S. employment data
had rattled U.S. markets overnight. CHENGDU
Sino-U.S. ties have deteriorated over issues ranging from
the COVD-19 pandemic, which began in China, to Beijing trade and
business practices, its territorial claims in the South China
Sea and its clampdown on Hong Kong.
Markets have so far been relieved that no flashpoint has yet
prompted either side to abandon the trade deal, but are
beginning to view it as a real risk.
The Chinese yuan CNH=D3 , a barometer of Sino-U.S.
tensions, looks set for its worst week in two months. It last
sat at 7.0206 per dollar. CNY/
Other trade-exposed Asian currencies from the South Korean
won KRW= to the Thai baht THB= were also gently pressured.
Elsewhere the tearaway euro EUR=EBS remained a tower of
strength since busting through chart resistance in the afterglow
of Europe's leaders agreeing on a coronavirus rescue package.
It has gained 1.5% this week, its best since late June, and
3.3% for the month so far to sit at $1.1601, just below a
21-month high hit overnight.
Sterling GBP= hung on to early-week gains at $1.2733.
Besides Sino-U.S. tension, investors are looking to a slew
of Purchasing Managers Index figures due across Europe and the
U.S. later on Friday for a read on economic recovery progress.
Focus is also on the next U.S. fiscal rescue package, which
is deadlocked in Congress while a month-end deadline looms as
some unemployment benefits are due to expire. "The concern is that a failure to get this away will impact
consumer sentiment at a time when U.S. data is starting to miss
the mark," said Chris Weston, head of research at Melbourne
brokerage Pepperstone.