September 19, 2018 / 4:38 PM / in a month

FOREX-Dollar slips vs euro, Aussie as investors discount trade tensions

* Dollar slips vs risk-sensitive Aussie

* Sterling erases early gains as traders eye EU summit (New throughout, updates prices, market activity and comments)

By Saqib Iqbal Ahmed

NEW YORK, Sept 19 (Reuters) - The U.S. dollar edged lower against the euro and fell to the lowest in nearly three weeks against the risk-sensitive Aussie on Wednesday, as investors did not rush to buy the greenback on the latest round of tariffs by China and the United States.

The euro was 0.14 percent higher against the greenback.

The Australian dollar, seen as a proxy for China-related trades as well as a barometer of broader risk sentiment, was 0.69 percent higher, the highest since Aug. 30.

“The market reaction seems to suggest that the tariff announcement was overall on the soft side of market expectation,” said Alvise Marino, an FX strategist at Credit Suisse in New York.

Risk appetite held up across markets. Emerging-market currencies firmed, led by the Indian rupee after China said it would not retaliate with competitive currency devaluations.

Heightened trade-related tensions in recent months have been generally supportive of the U.S. dollar versus currencies viewed as riskier.

The trade war escalated as U.S. President Donald Trump levied tariffs on $200 billion worth of Chinese goods and Beijing retaliated with duties on about $60 billion worth of U.S. goods.

But Washington’s new duties were set at 10 percent for now, before rising to 25 percent by the end of 2018, rather than an outright 25 percent, as some market participants had feared.

Traders also kept an eye on Brexit-related news out of Salzburg, Austria, where British Prime Minister Theresa May was meeting with European Union leaders at a summit.

Investors were also awaiting next week’s Federal Reserve meeting. The U.S. central bank is expected to raise benchmark interest rates and shed light on the path for future rate hikes.

The dollar was 0.15 percent lower against the yen. Bank of Japan Governor Haruhiko Kuroda stressed that he would not pull the plug on monetary easing until inflation hits his 2 percent target, warning that escalating international trade disputes could inflict widespread damage to global growth.

The Canadian dollar strengthened to its highest in nearly three weeks against its U.S. counterpart, before paring most gains ahead of further talks to revamp the North American Free Trade Agreement.

Sterling was up moderately against the dollar, having erased most early gains after The Times reported that Theresa May had rejected an improved offer from the EU to solve the Irish border issue.

Reporting by Saqib Iqbal Ahmed; Editing by Chizu Nomiyama and David Gregorio

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