September 25, 2019 / 7:58 AM / 22 days ago

FOREX-Dollar recovers from Trump impeachment damage; trade tensions weigh

* Dollar recovers after Tuesday’s drop on impeachment inquiry

* Aussie, offshore yuan hurt by latest trade concerns

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, Sept 25 (Reuters) - The dollar recovered on Wednesday after falling when a formal impeachment inquiry began against U.S. President Donald Trump, while the latest Sino-U.S. trade row hurt currencies correlated with global growth.

The dollar dropped on Tuesday after House Speaker Nancy Pelosi announced the House of Representatives would initiate a formal inquiry, saying Trump appeared to have undermined national security and violated the U.S. Constitution.

The dollar recovered in early European trading, although analysts said the impeachment inquiry would increase pressure on the U.S. currency, which has been among the best performers in recent years.

It is uncertain whether the inquiry will lead to impeachment, much less to conviction, which needs a two-thirds majority in the Republican-controlled Senate. But the political uncertainty is considered negative for the dollar.

Some market players also think domestic conflict will consume Trump’s political capital, making it harder for him to compromise with China on trade and other issues.

“Heightened political uncertainty in the run-up to the election could further undermine the outlook for business investment and growth in the US, and pose some downside risks for the US dollar in the year ahead,” MUFG analysts said.

The dollar index was last up 0.2% at 98.545. Against the euro, it rose 0.2% to $1.0996.

Forex markets elsewhere were mostly in a risk-off mood, with the Australian dollar, sterling and most emerging-market currencies lower.

On Tuesday, Trump’s rhetoric on China turned harsh as he criticised Beijing’s trade practices at the United Nations General Assembly, saying he would not accept a “bad deal” in U.S.-China trade negotiations.

Chinese Foreign Minister Wang Yi retorted that Beijing would not be threatened on trade or allow interference in its affairs, including Hong Kong, and had no intention to “play the `Game of Thrones’ on the world stage”.

“Trump’s speech was full of sensitive words for China - trade practices, currencies, freedom of religion and so on. It is not hard to imagine it will irritate China,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

“In the past China has reacted to U.S. pressure on trade by bringing down the yuan. It appears we are having that settings again,” he said.

China’s offshore yuan fell 0.2% to 7.1205. China- exposed Australian dollar weakened 0.3% to $0.6780.

The yen dropped 0.2% against the dollar to 107.31 yen . Another safe-haven, the Swiss franc, edged up 0.2% against the euro to 1.0845 francs.

Sterling dropped 0.4% to $1.2445, reversing most of its gains from Tuesday, when Britain’s Supreme Court ruled Prime Minister Boris Johnson had unlawfully suspended parliament. (Additional reporting by Hideyuki Sano in Tokyo, editing by Larry King)

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