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Dollar hits 11-month high amid further US tariffs

London

THE dollar rose to an 11-month high on Tuesday and the euro slumped after US President Donald Trump threatened more tariffs on China in an escalating trade dispute investors fear could hurt global growth.

Hostility over trade between the world's two largest economies intensified on Tuesday when Mr Trump threatened to impose a 10 per cent tariff on US$200 billion of Chinese goods, prompting a swift warning from Beijing of retaliation.

Months of tit-for-tat trade measures between Beijing and Washington have had a fairly limited impact on currencies up to now. But this week's threats have hurt currencies including the Australian dollar and Swedish crown, vulnerable to protectionist measures.

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The dollar rose against a basket of currencies as traders bet on a escalating trade war forcing inflation up in the US because of costlier imports, raising the prospect of more interest rate rises.

Chinese stocks sank almost 4 per cent and the yuan slumped to a five-month low overnight.

"Asian currencies and stocks are feeling most of the impact compared to Europe but that could quickly change if this escalates," said fund manager Constantin Bolz of German-based wealth management firm Portfolio Concept.

Investors bought currencies traditionally considered safe havens.

The Japanese yen climbed 0.8 per cent against the dollar to 109.56 yen, its highest level in a week and the Swiss franc rose 0.3 per cent against the dollar to 0.9918 franc.

Traders are divided other whether the row will affect the dollar meaningfully.

Currency markets in general dislike trade intervention, and previous protectionist efforts by the US government have weakened the dollar.

On Tuesday, however, the dollar strengthened half a per cent versus a basket of major currencies to hit US$95.266, its highest since July 2017.

"If the situation were to escalate the main beneficiary would be the US dollar," said Commerzbank currency strategist Thu Lan Nguyen.

"And of course a far-reaching trade war would be detrimental for everyone in the end, but mainly the countries whose growth heavily depends on foreign trade," she said.

China's commerce ministry responded on Tuesday by saying Beijing would fight back firmly with "qualitative" and "quantitative" measures if the United States publishes additional tariffs. REUTERS