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CURRENCIES

Euro, yuan slide amid flare-up in trade tensions

London

THE euro fell almost half a per cent and the Chinese yuan dropped to a 14-month low on Thursday after a flare-up in the trade tensions between the United States and China sent investors scrambling to buy the US currency.

US administration officials said on Wednesday that President Donald Trump was proposing a 25 per cent tariff on US$200 billion worth of Chinese imports, rattling global financial markets and sending equity markets tumbling. China urged the United States to return to reason.

The euro fell 0.4 per cent to a two-week low of US$1.1608 .

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China's offshore yuan, which has been under pressure on worries the months-long trade dispute will hurt its economy, slid another half per cent to as low as 6.868 yuan, its weakest since May 2017.

"Ultimately, where do you go? You go to the currency that is the most stable and actually has a yield," said Michael Hewson, chief analyst at CMC Markets, explaining why investors had rushed to buy dollars.

The dollar index, which measures it against a basket of six currencies, rose 0.3 per cent to 94.944, off last week's 3 1/2-week low of 94.084.

The Australian dollar, seen as a proxy for Chinese growth because of Australia's export-reliant economy, also sold off, slipping 0.6 per cent to US$0.7363.

The safe-haven Swiss franc hit a one-month high against the euro but was weaker against the dollar.

The safety bid for the US currency was further bolstered by higher US Treasury yields and an upbeat assessment from the Federal Reserve.

After ending its two-day policy meeting, the Fed left interest rates unchanged, as expected, and said US economic growth has been rising and the job market had continued to strengthen.

Analysts said the meeting was mostly uneventful although the central bank was more positive on the economy.

"Indeed, the only change even worth highlighting from the statement was a slightly more upbeat view of growth in economic activity, which the Fed now regards as "strong" as opposed to "solid" previously," Deutsche Bank analysts said.

The yen bucked the trend of weakness, rising 0.2 per cent against the yen to 111.48 as benchmark Japanese government bond yields touched a 1 1/2-year high .

The yen's gains were limited after it dropped on Tuesday, following the Bank of Japan's pledge to keep rates low for an extended period. REUTERS