ICE cotton futures dropped to a near three-week low on Friday, ahead of a US response to new Chinese national security legislation for Hong Kong in a potential increase in tensions that could hamper Chinese buying of the natural fiber.

Cotton contracts for July fell 0.66 cent, or 1.15%, to 56.91 cents per lb. as of 01:32 p.m. EDT (1732 GMT).It traded within a range of 56.56- its lowest since May 12, and 57.73 cents a lb.

US President Donald Trump, who said he would announce actions against China on Friday for its treatment of Hong Kong, will hold a news conference at 2 p.m. (1800 GMT), the White House said.

Uncertainty over Trump's press conference is weighing heavily on the cotton market, said Jon Marcus, president of Lakefront Futures and Options brokerage in Chicago.

“If additional tariffs or sanctions are suggested or imposed, the cotton market will see an immediate negative reaction that could drop the market back to the 48.00-50.00 cents per lb range."

The United States has been highly critical of China's handling of the Hong Kong situation with Trump saying Washington would react “very strongly" against the attempt to gain more control over the former British colony.

Despite rising tensions, the United State Department of Agriculture's (USDA) weekly export sales report included 58,600 RB of net sales from top-buyer China in the week to May 21.

But “other than some apparent inquiries by (China's state)Reserve, there is very little business going on, as shippers are still busy trying to sort out backlogged commitments," said Peter Egli, director of risk management at British merchant Plexus Cotton, in a note on Thursday.

Net sales for 2019/2020 were 44,600 RB in the week to May 21, USDA's export report showed.

Copyright Reuters, 2020