September 18, 2018 / 7:35 AM / 2 months ago

FOREX-Dollar falls for second day as trade war escalates

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Sept 18 (Reuters) - The dollar fell for a second consecutive day and the euro gained on Tuesday after U.S. President Donald Trump escalated his trade war with China by imposing 10 percent tariffs on about $200 billion worth of Chinese imports.

While the greenback has benefited from safe-haven flows amid the escalating Sino-U.S. trade conflict in recent months, investors are starting to worry about the broader impact of the tariffs on the U.S. economy and have pushed the dollar below a key technical level.

With Beijing keeping a firm grip on the Chinese renminbi in the aftermath of the latest measures and refusing to let it weaken below a Jan. 2017 low of 6.93 yuan per dollar hit last month, sentiment was more optimistic towards emerging currencies.

“China is playing a steady hand on the currency front and the news flow out of Europe continues to be positive which is helping European currencies,” said Alvin Tan, a currency strategist at Societe Generale in London.

The dollar index had popped up to 94.607 earlier in the early Asian session but quickly gave up its gains to turn lower on the day and fell 0.2 percent to its lowest since end-July at 94.35.

“The dollar’s knee-jerk reaction has subsided somewhat as some equity markets are managing to rise despite the trade news. It appears that a consensus had already been formed beforehand on what the trade announcement would be,” said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.

Sweden’s first rate hike since July 2011 is inching closer, with the central bank’s board giving broader backing for policy tightening in the months ahead, according to minutes published on Monday, while Norway is set to raise interest rates this week. and

Against the euro, the greenback fell 0.1 percent to $1.1717 while the Swiss franc was trading at a six-month high against the dollar at 96.05 cents before a central bank rate decision this week from Switzerland where markets expect policymakers to hold rates.

On technicals, the outlook is cautious for the dollar after it fell below a 100-day moving average for the first time in six months overnight, or roughly around the time period when concerns about trade wars hit the spotlight.

China’s yuan traded in the offshore market was a shade stronger at 6.8931 per dollar, though Chinese stocks managed slim gains.

Emerging market currencies including the Turkish lira , South African rand and the Mexican peso were broadly steady. (Reporting by Saikat Chatterjee; Additional reporting by Shinichi Saoshiro in TOKYO Editing by Andrew Heavens)

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