Dollar at 2-week lows as fears of Syria strikes grow

London

THE US dollar slipped to a two-week low against a basket of currencies on Wednesday as trade war fears receded but uncertainty over possible Western military action against Syria bred risk aversion among some investors.

Equity markets fell, with US stock index futures down nearly 1 per cent and the safe-haven Japanese yen climbed to the day's highs against the dollar on heightened volatility.

Concerns about military action in Syria appear to be overshadowing any relief about a reduction in trade tensions between China and the United States.

"The immediate trigger for today's risk aversion is neither rising US yields or trade wars but the possibility of a reaction to the suspected chemical attack on civilians in Syria," Societe Generale FX strategist Kit Juckes said.

The dollar index versus a basket of six major peers was down 0.1 per cent at 89.516, trading within sight of a low of 89.251 set on March 28.

Against the yen, the dollar fell about 0.3 per cent to trade at 106.750 yen.

Russia and the United States tangled on Tuesday at the United Nations over the use of chemical weapons in Syria as Washington and its allies considered whether to strike at Syrian President Bashar al-Assad's forces over a suspected poison gas attack last weekend.

Pan-European air traffic control agency Eurocontrol on Tuesday warned airlines to exercise caution in the eastern Mediterranean due to the possible launch of air strikes into Syria in the next 72 hours.

Investors had cautiously returned to markets after China promised on Tuesday to open the country's economy and lower import tariffs on products such as cars.

That assurance helped allay concern about a trade war with the United States and restored some appetite for risk among investors in commodity currencies and emerging markets.

The Swiss franc was the worst performing G-10 currency on Wednesday and fell 0.3 per cent against the euro to 1.1823, its lowest since 2015.

The franc is seen by some as a safe-haven currency in times of political uncertainty so its fall can imply risk appetite remaining firm. Some investors are concerned that foreign exchange, the world's largest market, could be dragged into a trade conflict.

China's central bank governor on Wednesday said the country's exchange rate mechanism is working well. REUTERS