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US dollar rises as investors move out of safe havens

[NEW YORK] The US dollar rose broadly on Monday as traders unwound bearish bets against the US currency that have come in the wake of increasing tensions with North Korea and underwhelming inflation data.

The absence of further abrasive rhetoric by US President Donald Trump and North Korean leader Kim Jong Un over the weekend helped bring investors back to the US dollar, analysts said.

Chinese President Xi Jinping called on Saturday for a peaceful resolution to the North Korean nuclear issue, and in a call with Mr Trump urged all sides to avoid words or action that raise tensions.

The US dollar index, which tracks the greenback against six major world currencies, rose 0.3 per cent.

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Against the Swiss franc, traditionally considered a safe-haven currency that strengthens in times of geopolitical stress, the US dollar was on pace for its largest one-day per centage gain since late July.

"Given that positioning is so stretched in one direction, the market's started to ... reverse," said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. "We're seeing a bit of an unwind of the strong yen and Swiss franc position."

Mr McCormick added that because of the US dollar's deterioration, it would take fresh negative headlines about the US and North Korea for the US dollar to continue to weaken. "There's a very low bar for positive surprises to feed back into the US dollar," he said.

The US dollar index fell to its lowest level since May 2016 earlier this month. Last week it fell to an eight-week low against the Japanese yen. On Monday the US dollar rose 0.3 per cent against the yen to 109.48 yen.

The US dollar was also boosted by gains in US stock markets, said Brian Daingerfield, macro strategist at NatWest Markets in Stamford, Connecticut.

The benchmark S&P 500 stock index was up 1.05 per cent, bouncing back from sizeable losses touched last week.

World stocks also rose, showing signs of relief after fears of a nuclear stand-off drove them to the biggest weekly losses of 2017 last week.

Investors are looking to a report on US retail sales due Tuesday for their next clue on the trajectory of US inflation.