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US dollar pressured again as economic fears linger amid declines in American yields

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Pressure was back on the dollar on Wednesday, as nagging fears the Sino-US trade war will drag on and severely hurt economic growth led to yet another slide in US bond yields.

[TOKYO] Pressure was back on the dollar on Wednesday, as nagging fears the Sino-US trade war will drag on and severely hurt economic growth led to yet another slide in US bond yields.

The dollar index against a basket of six major currencies stood little changed at 98.013 after dipping 0.1 per cent overnight.

The greenback started on a shaky footing this week, but then recovered as safe-haven Treasury yields bounced from multi-year lows after US President Donald Trump softened his tone against China and predicted the two countries would be able to reach a trade deal.

But optimism on trade negotiations wilted as China's foreign ministry dismissed US suggestions that there had been contact between the two sides, and said it hopes Washington can stop its wrong actions and create conditions for talks.

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The dollar's peers, notably the safe-haven yen, got an additional boost as falls in long-term Treasury yields deepened the inversion of the US yield curve, a phenomenon that has presaged several past US recessions.

"The markets have pulled out of the latest round of chaos," said Takuya Kanda, general manager at Gaitame.Com Research Institute, referring to the tumult in global markets at the end of last week when Washington and Beijing announced fresh tit-for-tat tariffs in a further escalation of their trade dispute.

"But as the US yield curve inversion shows, the markets' economic views remain dim, and the yen ends up gathering more buyers than sellers," Mr Kanda said.

The 10-year US Treasury yield extended declines from overnight and last stood at 1.461 per cent, edging back towards 1.443 per cent, its lowest since July 2016 brushed on Monday.

The dollar was a shade weaker at 105.680 yen after shedding 0.35 per cent overnight, but still up from an eight-month low of 104.460 hit on Monday.

The euro was flat at US$1.1091 after inching down 0.1 per cent on Tuesday when it had managed to recoup some of the intraday losses on hopes that a snap election in Italy could be avoided.

The pound traded near a one-month high of US$1.2310 scaled overnight.

Sterling rallied on Tuesday after Britain's opposition Labour Party leader Jeremy Corbyn said he would do everything necessary to prevent Britain leaving the European Union without a divorce deal.

The Australian dollar was almost flat at US$0.6751, having lost 0.4 per cent on Tuesday after Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said a weakening domestic currency was supporting the economy and that further falls would be beneficial.

The Aussie has fallen to a decade-low of US$0.6677 early in August, weighed by factors including RBA's monetary easing bias and a bleaker economic outlook in China, Australia's largest trading partner.

REUTERS