Currency Markets Keep Wary Eye on Trade Troubles

Foreign exchange markets trod water on Wednesday, with investors seemingly unable to make up their minds about any wider fallout from a Sino-US trade dispute, though the safe-haven Japanese yen gained versus the dollar.

Those tensions have overshadowed a bounce in US stock markets and prompted a broader reluctance to take on new positions in risk assets, Reuters reported.

In FX markets, the dollar dipped only slightly, as some traders bet President Donald Trump's tariffs on Chinese goods and Beijing's response would damage the currency while others remained confident the row could be contained.

"There is a lack of consensus in the markets about how trade wars are going to impact," said Jany Foley, FX strategist at Rabobank. "The FX Markets are treading water."

The dollar fell 0.2% to trade at 106.39 yen, a safe haven currency of choice for many who believe it would benefit most during a trade war.

The greenback gained on the yen the day before as risk appetite improved and Wall Street's main indexes advanced, helping the US currency stabilize after recent declines.

The euro slipped 0.1% versus the dollar to $1.226. Against a basket of major currencies, the dollar was down 0.1% at 90.102.

Data on Wednesday could return investors' focus to central bank policy, at least in the eurozone.

Eurozone inflation numbers due at 0900 GMT Wednesday are expected to show a small pick-up and could offer some support to a single currency that has been stuck in a trading range for the last two months.

The Korean won fell 0.5% against the dollar to 1058.57 won. With the Korean economy so exposed to international trade flows, that suggested some parts of the currency markets were expecting trade disputes to hurt global growth.

The Trump administration on Tuesday raised the stakes in its showdown with China, announcing 25% tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing's intellectual property practices.

China's Ministry of Commerce said it "will soon take measure of equal intensity and scale against US goods."

The persistent worries over global trade tensions are likely to weigh on the dollar against the yen, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.