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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 and out of safe-haven currencies such as the Japanese yen and Swiss franc, analysts said.

"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."

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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, which tracks the greenback against six major currencies, was last up 0.4 per cent.

The index fell to its lowest since May 2016 earlier this month. Data from Commodity Futures Trading Commission released on Friday showed speculators' net short bets on the US dollar grew last week to their largest position since January 2013.

Last week the US dollar fell to an eight-week low against the Japanese yen. On Monday it rose 0.5 per cent to 109.67 yen.

Against the Swiss franc the dollar was up 1.1 per cent, on pace for its largest one-day percentage gain in nearly three weeks.

Comments from New York Federal Reserve Bank President William Dudley that it was not unreasonable to think the central bank would begin trimming its US$4.2 trillion balance sheet in September and add another rate hike this year, provided economic data holds up, pushed the US dollar index to its highest level of the day.

The US dollar also was 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 rose 1.05 per cent, bouncing back from sizeable losses 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.