September 20, 2018 / 9:04 AM / 2 months ago

FOREX-Dollar stuck near seven-week low as trade war fears fade

* Dollar falls, risk-sensitive currencies rise on trade hopes

* Sterling rises despite caution over EU Brexit summit

* Norwegian crown slumps after dovish central bank decision

* Aussie holds gains,, kiwi rises on GDP

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds Swiss, Norway central bank decisions, UK data)

By Tom Finn

LONDON, Sept 20 (Reuters) - The dollar hovered near a seven-week low against a basket of major currencies on Thursday, its safe-haven appeal lessened by fading fears about a trade row between China and the United States.

After a knee-jerk reaction to new tariffs announced by Washington and Beijing on Tuesday, currency markets are settling down and expecting the fallout will take some time to show up in corporate earnings and not produce a sharp global shock.

The dollar has tended to gain as tensions escalate between the world’s two largest economies. It dipped 0.2 percent to 94.328, near its seven-week low of 94.308 touched on Tuesday.

Traders noted that U.S. macro economic data has remained strong so far despite trade disputes.

Emerging-market currencies strengthened, led by the Indian rupee after China said it would not retaliate with competitive currency devaluations.

Despite its weaker tone on Wednesday, some market participants still see strength for the dollar.

“It is the champion reserve currency and it has the risk-free Fed funds rate. So the currency with the lowest risk is offering the highest yield in G10,” said Andreas Koenig global head of FX at asset manager Amundi.

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

Markets were closely watching a European Union summit where British Prime Minister Theresa May appealed to fellow EU leaders on Wednesday to drop “unacceptable” Brexit demands that she said could rip Britain apart.

CROWN SLUMPS

Sterling climbed 0.4 percent to $1.3207 after UK retail data beat forecasts.

The British currency has strengthened recently on optimism that Britain and the European Union can make significant progress towards a Brexit deal at an EU leaders summit.

But the pound fell on Wednesday after The Times reported that May had rejected an improved offer from the EU on the Irish border issue.

Elsewhere, the Norwegian crown slumped more than 1 percent versus the euro after the country’s central bank raised interest rates for the first time in seven years, as expected, but trimmed its policy rate forecasts.

The crown fell to 9.6150 and dropped half a percent versus the dollar to 8.1970.

The safe-haven Swiss franc did not move significantly after the country’s central bank kept its ultra-loose monetary policy in place on Thursday, citing the “fragile” exchange rate situation and rising international trade tensions and protectionism.

The SNB has sought to stem investor appetite for the franc over the last three and-a-half years.

“Short term the SNB might be able to prevent franc appreciation with the help of interventions, but no doubt it would not manage to do so long term,” said Commerzbank currencies strategist Ulrich Leuchtmann.

The euro was 0.2 percent higher against the dollar at $1.17

The Australian dollar, a proxy for China-related trades as well as a barometer of broader risk sentiment, held at three-week highs, having gained 1.5 percent so far this week. It stood at $0.7268. (Reporting by Tom Finn editing by Larry King/Keith Weir)

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