September 19, 2018 / 7:30 PM / a month ago

FOREX-Dollar slips vs euro, Aussie as investors discount trade tensions

    * Dollar slips vs risk-sensitive Aussie
    * Sterling erases early gains as traders eye EU summit

 (Updates market action, adds comment)
    By Saqib Iqbal Ahmed
    NEW YORK, Sept 19 (Reuters) - The U.S. dollar edged lower
against the euro and fell to the lowest in nearly three weeks
against the risk-sensitive Aussie on Wednesday, as worries over
a trade row between China and the United States eased.
    The euro was 0.14 percent higher against the greenback.
    The Australian dollar, seen as a proxy for China-related
trades as well as a barometer of broader risk sentiment, was
0.69 percent higher       , the highest since Aug. 30.
    China on Tuesday imposed new levies on about $60 billion
worth of U.S. goods, as planned, but scaled back rates.
Washington's new duties were set at 10 percent for now, before
rising to 25 percent by the end of 2018, rather than an outright
25 percent.             
    "The market reaction seems to suggest that the tariff
announcement was overall on the soft side of market
expectation," said Alvise Marino, an FX strategist at Credit
Suisse in New York.
    Risk appetite held up across markets. Emerging-market
currencies firmed, led by the Indian rupee after China said it
would not retaliate with competitive currency devaluations.
    Heightened trade-related tensions in recent months have been
generally supportive of the U.S. dollar versus currencies viewed
as riskier. 
    Despite its weaker tone on Wednesday, some market
participants still see strength for the dollar.
    "It is the champion reserve currency and it has the
risk-free Fed funds rate. So the currency with the lowest risk
is offering the highest yield in G10," said Andreas Koenig
global head of FX at asset manager Amundi.
    "As long as this abnormality holds you can't strategically
sell the dollar."
    Investors were also awaiting next week's Federal Reserve
meeting. The U.S. central bank is expected to raise benchmark
interest rates and shed light on the path for future rate hikes.
   
    The dollar was 0.15 percent lower against the yen.
             Bank of Japan Governor Haruhiko Kuroda stressed
that he would not pull the plug on monetary easing until
inflation hits his 2 percent target, warning that escalating
international trade disputes could inflict widespread damage to
global growth. 
    The Canadian dollar strengthened to its highest in nearly
three weeks against its U.S. counterpart, before paring most
gains ahead of further talks to revamp the North American Free
Trade Agreement.             
    Traders kept an eye on Brexit-related news out of  Salzburg,
Austria, where British Prime Minister Theresa May was meeting
with European Union leaders at a summit.             
    Sterling was nearly flat against the dollar, having erased 
most early gains after The Times reported that May had rejected
an improved offer from the EU on to solve the Irish border
issue.              
    One of the thorniest problems remaining in the negotiations
is how to avoid a disruptive post-Brexit "hard border" for
troubled Northern Ireland on the United Kingdom's only land
border with the EU.    

    
 (Reporting by Saqib Iqbal Ahmed
Editing by Susan Thomas)
  
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