China’s currency dropped offshore after President Donald Trump signed a bill into law that expresses support for Hong Kong protesters, raising concern over how Beijing will respond.
The yuan weakened as much as 0.2% before trading at 7.0257 per dollar at 8:32 a.m. in Hong Kong. Signing the bill could complicate U.S.-China talks over a trade agreement.
“Trump’s signing the Hong Kong bill is likely to trigger another risk-off session,” said Hao Zhou, senior emerging markets economist at Commerzbank AG. “The phase 1 deal is likely to be delayed.“
The legislation in support of the protesters requires annual reviews of Hong Kong’s special trade status under American law — and sanctions against any officials deemed responsible for human rights abuses or undermining the city’s autonomy.
The offshore yuan has weakened 2.2% against the greenback this year. While the CSI 300 Index of equities had a strong first quarter, jumping 29%, it’s mostly moved sideways since.
China’s foreign ministry had urged Trump to prevent the legislation from becoming law, warning the Americans not to underestimate China’s determination to defend its “sovereignty, security and development interests.”
Trump said Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone. The two sides have been wrangling over how to put the deal on paper and what tariffs the U.S. will drop in exchange.
“Regardless of what both sides said, it looks like it’s not easy to strike a consensus, so now even striking a phase 1 deal could be hard,” said Stephen Chiu, Asia FX and rates analyst at Bloomberg Intelligence.