Another shift in trading tone was observed in the market over late Thursday into the session on Friday, with things yet again heating up with the U.S. and China, this time over Hong Kong.
The relations have soured over a broad range of rising issues, but on the current occasion, on the treatment of the former British colony of Hong Kong.
China is set to impose new national security legislation on Hong Kong following last year’s pro-democracy unrest, according to a Chinese official, which risk fresh protests in the city.
U.S. President Donald Trump has warned that Washington would react “very strongly” to the legislation.
Why does the US care about Hong Kong?
In 1992, the US passed the US/Hong Kong Policy act, which stipulates that the US would continue to treat Hong Kong apart from the People’s Republic of China after the 1997 transfer of sovereignty back to China from the British.
As such, the US has since maintained a “special” relationship with Hong Kong, compared to its relationship with the mainland, that has resulted in multiple bilateral agreements to promote investment, trade and cultural exchange.
In essence, the US sees Hong Kong as a beacon of democracy in a sea of Chinese communist authoritarianism, something that is worth protecting. Naturally, China seeks to undermine Hong Kong democracy - this is the essence of the US/Chinese clash on this issue.
What does this mean for the market?
These fresh geopolitical strains have boosted the safe-havens; USD, JPY, CHF and Gold. The exposed risk currencies; AUD, NZD, CAD, GBP and EUR also have been rattled, losing their upside momentum seen at the start of the week.
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