By Peter Nurse
Investing.com - The U.S. dollar was in demand during early European trade Friday as simmering U.S.-China tensions flared up, prompting investors to seek the traditional safe haven.
At 2:45 AM ET (0645 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.627, up 0.2%, EUR/USD dropped 0.2% to 1.0925, while GBP/USD fell 0.2% to 1.2203.
The latest source of Sino-U.S. disagreement came after Beijing moved to impose a new security law on Hong Kong after last year's pro-democracy unrest.
The decision drew a warning from President Donald Trump that Washington would react "very strongly" against the attempt to gain more control over the former British colony.
The yuan has also been hit by China's decision to omit an economic growth target for 2020, which renewed concerns that the fallout from the coronavirus pandemic will last longer than originally expected.
At 2:45 AM, USD/CNY traded at 7.1238, up 0.1%, hitting a two-month high. The offshore yuan, which trades in a more flexible range, also fell to a two-month low. The Aussie, which is widely seen as a rough proxy for Chinese commodity demand, was the day's biggest loser, falling 0.6%.
Washington and Beijing also have differing opinions over telecoms equipment giant Huawei Technologies’ access to advanced technology and as well as Beijing's response to the coronavirus outbreak.
"There have been problems between the United States and China for quite a while now," said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.
"Some very short-term players are changing positions from one day to the next, which makes it difficult to see the trend, but overall the dollar looks to be supported."
In Japan, core consumer prices fell for the first time in more than three years in April on an annual basis.
However, the yen showed some strength after the central bank extended the deadline for a series of measures it has deployed to combat the virus fallout, including accelerated corporate debt buying, by six months to March 2021, but kept its short-term interest rate target of -0.1% unchanged.
USD/JPY traded at 107.46, down 0.1%
In emerging markets, the central banks in Turkey and South Africa both took advantage of their currencies' recent rebounds to cut interest Thursday in effort to help their battered economies. The llira and rand both dipped but held on to most of their gains.
USD/TRY traded 0.2% higher at 6.7946 and USD/ZAR up 0.8% at 17.7113.
The lira was still up 1.5% on the week, while the rand was up 4.6%.