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Dollar eyes one-month lows as fears of trade war grow

London

THE dollar was pinned near one-week lows on Wednesday as news that the United States is seeking to impose tariffs of up to US$60 billion of Chinese imports raised concerns that a brewing trade war may escalate quickly.

The latest developments hit the greenback which has recovered smartly from February lows and reached a six-week high earlier this month on growing expectations of as many as four interest rate increases this year.

"It is not clear what the outcome will be for currency markets if a full blown trade war breaks but it should be generally bad for the dollar," said Lefteris Farmakis, a macro strategist with UBS based in London.

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The dollar index was broadly flat at 89.56, its lowest level since March 8 and within striking distance of a one-month low of 89.40.

At the start of the month, the dollar hit 90.90, its highest since Jan 19, but it has slipped since then as the trade war concerns have grown.

US President Donald Trump is seeking to impose tariffs on up to US$60 billion of Chinese imports and will target the technology and telecommunications sectors, two people who discussed the issue with the Trump administration said on Tuesday.

The news comes before a G-20 meeting next week where the world's leaders will pledge to fight unfair trade practices and stress the role of global trade rules.

The dollar also lost some traction after February US inflation data on Tuesday matched expectations, suggesting the Federal Reserve remained on track to raise rates at a gradual pace.

Against the yen, the dollar was flat at 106.640 yen, having slipped overnight from a two-week high of 107.300 reached after wariness over a political controversy in Japan waned slightly.

Elsewhere, the euro hit the day's lows after European Central Bank President Mario Draghi struck a dovish tone in his speech. The single currency was down 0.2 per cent on the day, at US$1.2364.

The ECB needs further evidence that inflation is rising towards its target but is also growing more confident that it is on track to do so, Mr Draghi said on Wednesday.

The pound rose about 0.2 per cent to a two-week high of US$1.3996.

The Australian dollar added 0.1 per cent to US$0.7870, within reach of a two-week peak of US$0.7898 scaled the previous day on robust business indicators.

Risk appetite was firmly on the front foot with the euro gaining against the Swiss franc, up more than 1.5 per cent so far this month. REUTERS

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