Dollar dives to four-week low as US-China trade tensions dominate

LONDON (Reuters) – The US dollar headed towards a four-week low against its rivals on Wednesday on concerns that elevated trade tensions between Washington and Beijing will continue to weigh on the global growth outlook.

Risk appetite was on the back foot with the Japanese currency firming against the greenback while trade-oriented currencies such as the Australian dollar and the Kiwi dollar led losers.

US-China ties came into focus again as the yuan fell after Beijing criticized new US legislation seen as supportive of pro-democracy protests in Hong Kong.

Escalating trade tariffs from China and the United States over the past year has forced central banks to start cutting interest rates as global growth expectations have weakened.

On Tuesday, the International Monetary Fund said it expected the global economy to grow in 2019 at its slowest pace since the 2008-09 financial crisis at 3.0%.

“The cost of taking this dispute to its next stage of escalation has exponentially increased,” Morgan Stanley strategists said in a daily note adding that US and China might adopt a more nuanced approach on the trade conflict in the coming days.

But on Wednesday, those tensions showed no signs of ebbing with the greenback fragile at 98.16, its lowest level since September 20.

Reports of a “Phase 1” trade deal between the United States and China last week initially cheered markets but the dearth of details around the agreement has since curbed any enthusiasm.

The Chinese currency also weakened.

In the onshore market, the yuan fell around 0.22% to 7.0973 per dollar. In the offshore market, the yuan was off more than 0.2% to 7.1028 versus the dollar.

The yen rose slightly to 108.66 per dollar, pulling away from a twomonth low.