August 29, 2018 / 11:17 AM / 2 months ago

FOREX-Dollar strengthens as relief over U.S.-Mexico trade deal dissipates

* Dollar index steady after coming off four-week low

* Euro, yen hemmed in tight ranges on low volatility

* Swedish crown nears nine-year low

* Investors await developments in China-U.S. trade dispute (Adds details, quote, updates prices)

By Tom Finn

LONDON, Aug 29 (Reuters) - The dollar rose on Wednesday as relief about a U.S.-Mexico trade deal gave way to concern among investors that the conflict over trade between the U.S. and China was not about to end soon.

The U.S currency had dipped to a four-week low overnight as investors unwound safe-haven bets on the currency after the United States and Mexico agreed on Monday to overhaul NAFTA.

The U.S. currency has fallen for three consecutive weeks, even though the United States was raising interest rates faster than other major economies.

That is partly because of political uncertainty in the U.S. - criminal convictions were brought against of one of President Donald Trump’s ex-advisors last week - and comments by the Federal Reserve that seemed to suggest a slower pace of U.S. rate increases.

On Wednesday, though, the dollar index gained and at 1045 GMT was up 0.1 percent at 94.826. It traded as low as 94.434 during the previous session, its lowest since July 31.

“This deal [with Mexico] was more about making progress before the mid-term elections in the United States,” said MUFG currency strategist Lee Hardman.

“The real fight is likely still ahead and it will not be long before investor attention shifts back to the more concerning conflict with China,” he added.

The deadline for public comment on U.S. President Donald Trump’s tariffs on another $200 billion of Chinese goods is on Sept. 5, with the new measures possibly taking effect later that month.

Elsewhere, the Swedish crown edged down towards a nine-year low versus the euro of 10.721 hit on Tuesday over uncertainty about next week’s election and signals that interest rates won’t rise until 2019.

AUSSIE HIT

“Low underlying inflation is putting question marks on Riksbank rate hikes and political risks ahead of the election are lowering the crown,” said Lina Fransson, a fixed income strategist at SEB.

Along with the Turkish lira and the Brazilian real, the Swedish crown has been one of the worst-performing currencies in 2018.

Its slide appeared to galvanise a similar move in the Norwegian crown which fell on Wednesday towards 9.7790 against the euro, its weakest level since February.

The euro, meanwhile, fell 0.2 percent to $1.1663, as worries mounted that Italy’s public deficit could exceed the European Union’s ceiling of 3 percent of gross domestic product.

It has risen against the dollar during the previous three sessions.

The Australian dollar was the weakest of the major currencies on Wednesday and fell about half a percent to $0.7298.

That was prompted by Australia’s Westpac Banking Corp raising its key mortgage rates in an effort to preserve its profit margins amid higher wholesale funding costs .

The Australian dollar was knocked lower as traders wagered the Reserve Bank of Australia might be forced to keep policy stimulatory for longer in the face of a de-facto tightening in the market.

China’s offshore yuan was down 0.4 percent at 6.8280 yuan per dollar, after the central bank announced fresh steps on Friday to stabilise the currency.

“Were we to see an escalation - with Washington following through with their threat of 25 percent tariffs on 200 billion dollars of Chinese imports - then we would expect another bout of yuan weakness as the currency adjusts to a weaker Chinese economic outlook,” said Viraj Patel, a currency analysts with ING in London. (Editing by Larry King)

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