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US dollar gets boost from trade war worries

London

THE US dollar rose towards two-and-a-half-month highs on Tuesday, supported by worries about an escalation of the Sino-US trade war.

The euro, pushed lower by the stronger US dollar, slipped as traders prepared for a swathe of data, including eurozone gross domestic product and German inflation.

Investors bought into the US dollar after Bloomberg reported that Washington was preparing to announce tariffs on all remaining Chinese imports by early December if talks between US President Donald Trump and Chinese President Xi Jinping fail to ease the trade war.

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Mr Trump and Mr Xi are due to meet on the sidelines of the Group of 20 leaders summit in Argentina at the end of November.

"Trade wars, a recovery on equity markets and poor data out of Europe and stronger data in the US" were supporting the US dollar at the euro's expense, said Niels Christensen, chief analyst at Nordea.

"I don't think the euro will bounce back. There's no reason for the ECB (European Central Bank) to start sounding more hawkish unless inflation surprises," he said.

The US dollar, measured against a basket of its peers, rose 0.2 per cent to 96.806, not far from 96.860, last week's two-and-a-half-month high.

The euro was a touch lower at US$1.1369, after reaching a 10-week low of US$1.1332 on Monday when German Chancellor Angela Merkel said that she would not seek re-election as head of the Christian Democrats party.

The euro has also been weighed down by a stand-off between Brussels and Rome over Italy's budget, which would breach the European Union's fiscal rules.

The Japanese yen extended its losses against the US dollar after losing ground overnight, partly as Japanese investors have been net buyers of offshore equities in the current month. The yen fell 0.4 per cent to 112.855. Yen traders are also focused on the central bank's monetary policy meeting due on Wednesday.

"We expect the Bank of Japan to leave policy on hold at its Oct 31 meeting. The policy board will likely revise down slightly its macro forecasts; continued downside risks to growth and inflation mean rate hikes are a long ways off," Bank of America Merrill Lynch analysts said.

In a sign that overall demand for risk was improving, the Australian dollar - often viewed as a barometer of global risk - gained half a per cent to US$0.7090 on Tuesday. REUTERS