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Dollar rises as investor risk appetite returns

London

THE US dollar clung to gains on Wednesday after rising from a three-week low as fading concerns about a trade war fed broader appetite for risk-taking among investors.

US markets were buoyed by strong corporate earnings and that helped European equities on Wednesday as investors focused on economic data and put to one side worries about a global trade war.

Markets in Asia picked up on a positive finish in the United States and were helped by China's decision to cut bank reserve requirements by 100 basis points for some commercial banks.

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"Concerns about military action in Syria, trade tensions between the US and China and the pace of rate hikes in the US have abated somewhat," Commerzbank economist Michael Schubert said in a note.

The dollar index against a group of six major currencies traded flat at 89.490.

The dollar was helped by a weakened pound which fell to a four-day low on Wednesday after British inflation unexpectedly cooled to a one-year low in March.

The data has raised doubts over a near consensus view that the Bank of England will raise interest rates next month.

Eurozone data also came in weaker than expected as investors looked for signs of the viability of further European central bank monetary tightening.

The dollar has found support from economic indicators recently as perceived political risks recede, with Western strikes on Syria not expected to escalate.

The dollar rose 0.3 per cent to 107.280 yen as improving risk appetite reduced demand for its Japanese peer, a currency often sought in times of market turmoil and political tensions.

But caution over US-China trade tensions continued to linger in the background, confining currencies to narrow ranges.

"Over the last couple of days, there have been few incendiary tweets from the US or China to unsettle markets further. So the markets are turning a bit more risk-on but there's always the fear of what comes next," said Berenberg economist Florian Hense.

The euro was up 0.1 per cent at US$1.2387.

The common currency rose to a three-week high of US$1.2414 on Wednesday but slipped on a ZEW research institute survey showing German investor morale reached its lowest since November 2012. REUTERS