Forex Today: Can markets find a silver lining? Hong-Kong heightens Sino-US tensions, boosts dollar

Here is what you need to know on Friday, May 22:

The market mood has markedly worsened amid souring Sino-American relations, with worries about Hong Kong serving as the latest trigger. A mix of developments from central banks, data, and the next moves in lockdowns will determine Friday’s trading. 

Titans clash: The US and China have been on a collision course for several days, and the straw that broke the camel’s back was the news that Beijing is considering significantly limiting freedoms in Hong Kong. The US officials have criticized the move and the financial hub city-state is bracing for protests.

Other developments on that front include China’s vow to retaliate for any bipartisan laws scrutinizing Chinese companies listed in the US. The National People’s Congress will refrain from setting a growth target amid growing uncertainty. The Communist Party focuses on keeping people at work amid rising unemployment. 

The silver lining is that the world’s largest economies both vowed to maintain Phase One of the trade agreement signed in January. That may soothe investors’ concerns and change the mood.

US data: A big bulk of US figures published on Thursday was mixed. Weekly unemployment claims came out at 2.483, worse than expected, while Markit’s preliminary Purchasing Managers’ Indexes for May beat estimates. Existing Home Sales plunged to 4.33 million annualized, within expectations.

GBP/USD remains under pressure amid rising expectations for negative interest rates. Retail sales figures for April will likely show a double-digit plunge (see preview)  Markit’s PMIs for May showed a recovery from records lows, but Britain remains in deep contraction. The UK is moving to lower its dependency on Chinese exports. 

The Bank of Japan announced a new loan scheme for small and medium businesses in a special meeting. Governor Haruhiko Kuroda and his colleagues left the interest rate unchanged at -0.10%. Japan is set to ease restrictions in the Tokyo region if infections continue falling. The country previously loosened the lockdowns in other hotspots. 

The European Central Bank’s meeting minutes will shed light on the recent decision, where the Governing Council called on governments to do more and pledged to act if necessary. Any hints about upcoming decisions in the June meeting – another €250 billion of bond-buying is eyed – will shake the euro. Eurozone PMIsmostly beat expectations, albeit remained in depressed levels.

Gold is consolidating its losses after suffering a swift sell-off on Thursday and following hitting new 7.5 year highs early in the week.

Oil prices have ended their winning streak and WTI is trading below $32, adding to pressures on the Canadian dollar. The nation publishes retail sales figures for March later on Friday. 

Cryptocurrencies have extended their losses, with Bitcoin struggling to hold onto the $9,000 level. 

More: Negative Rates: Only good for downing currencies?