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US dollar bounce fades, yuan dips, markets brace for China's response to US tariffs
[TOKYO] The US dollar was slightly higher on Tuesday and China's yuan fell as global markets braced for Beijing's response to new US tariffs on Chinese goods.
The dollar index against a basket of six major currencies was up 0.09 per cent at 94.585. The greenback in recent months has benefited from safe-haven flows amid the escalating Sino-US trade conflict.
The index had popped up to 94.607 earlier in the session after US President Donald Trump said on Monday that he will impose 10 per cent US tariffs on about US$200 billion worth of Chinese imports, effective Sept 24.
Mr Trump said that if China takes retaliatory action against US farmers or industries, "we will immediately pursue phase three, which is tariffs on approximately US$267 billion of additional imports."
"Of immediate concern to the market is how China responds to the tariffs," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
China's yuan was a shade weaker at 6.8740 per dollar in onshore trade, though Chinese stocks managed slim gains.
"The dollar's knee-jerk reaction has subsided somewhat as some equity markets are managing to rise despite the trade news. It appears that a consensus had already been formed beforehand on what the trade announcement would be," said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.
The dollar was 0.1 per cent higher at 111.94 yen. It had briefly dropped to 111.66 against the yen, another safe-haven currency that draws demand in times of market tensions and risk aversion, before bouncing back.
The Australian dollar, seen as a proxy to China-related trades as well as a barometer of broader risk sentiment, was nearly flat at US$0.7176, having climbed off a low of US$0.7144 plumbed earlier in the session.
Some analysts doubted Beijing would be in the mood to hold trade negotiations with Washington in the wake of Trump's latest decision. US Treasury Secretary Steven Mnuchin last week invited top Chinese officials to a new round of talks, but thus far nothing has been scheduled.
The euro was down 0.05 per cent at US$1.1678 after rising 0.5 per cent the previous day.
The pound dipped 0.1 per cent to US$1.3147.
Sterling had gained 0.7 per cent on Monday, hitting a six-week high of US$1.3165, helped by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will try to overcome this week at a European Union summit.
Emerging market currencies including the Turkish lira, South African rand and the Mexican peso were all slightly lower on Tuesday.