THE US dollar recovered on Wednesday after being hit a day earlier by the launch of a formal impeachment inquiry against US President Donald Trump while renewed global trade tensions weighed on the Chinese yuan and Australian dollar.
The US currency dropped on Tuesday after the announcement that the House of Representatives would initiate a formal impeachment inquiry and disappointing consumer confidence data also weighed on the greenback.
But the world's most liquid currency rebounded on Wednesday.
Adam Cole, a currency analyst at RBC Capital Markets, said the immediate reaction to sell the US dollar was questionable.
"For a couple of reasons it's not a sell risk or sell dollar story," he said, pointing to the very small chance that Mr Trump would be impeached, and his view that if the president left office it would not necessarily be positive for risky assets.
Some market players, however, said more domestic instability would consume Mr Trump's political capital, making it harder for him to compromise with China on trade or boost spending ahead of a presidential election next year.
"Increasing US political uncertainty may dampen the outlook further, as it reduces the already low probability of the US economy benefitting from a pre-election fiscal impulse," Morgan Stanley analysts said in a note.
The US dollar index climbed 0.2 per cent to 98.545. Against the euro, it rose 0.2 per cent to $1.0999.
Forex markets elsewhere were largely in a risk-off mood.
Mr Trump's rhetoric on China turned harsh on Tuesday as he criticised Beijing's trade practices during a speech at the United Nations General Assembly.
Chinese Foreign Minister Wang Yi said Beijing would not be threatened on trade or allow interference in its affairs.
China's offshore yuan fell 0.2 per cent to 7.1240. The China-exposed Australian dollar weakened 0.3 per cent to US$0.6779 .
Emerging market currencies mostly fell.
But the New Zealand dollar bucked the trend after its central bank gave a less dovish monetary policy outlook than expected.
The Kiwi was last 0.1 per cent higher at US$0.6319.
The yen dropped 0.2 per cent against the US dollar to 107.28 yen. Another safe-haven, the Swiss franc, edged up 0.2 per cent against the euro to 1.0845 francs.
Sterling dropped 0.5 per cent to US$1.2440, reversing most of its gains from Tuesday when Britain's Supreme Court ruled Prime Minister Boris Johnson had unlawfully suspended parliament. REUTERS