LONDON (Reuters) – The dollar climbed on Friday as the emergence of a fresh source of tension between the United States and China boosted demand for safe-haven currencies and caused the euro, offshore yuan, and commodity currencies to fall.

The dollar, which extended its overnight gains in London trading, rose after U.S. President Donald Trump said that Washington would react “very strongly” to a new Chinese security law on Hong Kong that could also lead to new pro-democracy protests.

Sino-American relations have worsened during the coronavirus pandemic. The U.S. has ramped up its criticism of China, blaming it for the spread of the virus, which originated in the city of Wuhan in central China.

Last week, the U.S. government moved to block global chip supplies to blacklisted telecoms equipment maker Huawei Technologies. The U.S. Senate also passed legislation that could prevent some Chinese companies from listing their shares on U.S. exchanges.

“Currently currencies are reflecting the risk-off scenario and that, for today anyway, explains why the dollar is higher,” said Neil Jones, head of FX Sales at Mizuho Bank.

“I think it will continue to go higher today and weigh on currencies like the euro and the pound, and the offshore yuan,” he added.

Jones said that the U.S.-China tensions look set to continue for now but that he is cautiously optimistic that a trade deal between the two countries will be reached, since it is in everyone’s interest.

Against a basket of comparable currencies, the dollar was last at 99.750, up 0.3% since New York’s close. After two consecutive weeks of gains, the dollar looks set to end this week down around 0.6%.

The euro was down around 0.4% against the dollar, at $1.0904, having retreated from the three-week high of $1.1008 it touched on Thursday.

Mizuho’s Jones said that the euro failing to hold around the key $1.10 level may have made some market participants turn more bearish or sell euro longs, and that the dollar’s strength is also a factor weakening the euro.

The offshore Chinese yuan hit a two-month low of 7.1644 versus the dollar in early London trading. Its weakest point during the peak of the coronavirus crisis at the end of March was 7.1651.

The onshore yuan hit eight-month lows.

Commodity currencies fell as investors sought safety, with the riskier Australian dollar down 0.5% and the New Zealand dollar down 0.4%, against the U.S. dollar.

Oil prices fell on Friday after China failed to set an economic growth target for 2020, sparking concern that the coronavirus pandemic will cap fuel demand in the world’s second-largest oil user.

“The fall in the oil price weighed on NOK overnight, making it the worst performing European currency (even underperforming RUB),” wrote ING strategists in a note to clients.

But, they added, the fall in Brent oil is a correction rather than the start of a new trend, and the Norges Bank is finished cutting interest rates, so the outlook is positive for the Norwegian crown for the second half of 2020.

The Norwegian crown was last down around 1.1% against the U.S. dollar and 0.6% against the euro, its weakest in five days.

(This story corrects headline to say ‘lift’ not ‘lifts’)

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