FOREX-Dollar jumps as market focuses on strong data over trade tension


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    * Dollar index up 0.4 pct on strong data, skepticism about
    * U.S. threatens 10 pct tariffs on $200 bln of Chinese
    * Chinese offshore yuan approaches 11-month lows

 (Add analyst comment, updates prices, headline and lead)
    By Kate Duguid
    NEW YORK, July 11 (Reuters) - The U.S. dollar rose on
Wednesday as the market put aside trade tension fears and
focused on expectation-beating inflation report, which increased
prospects that the Federal Reserve will raise interest rates
another two times this year. 
    China accused the United States of bullying and warned it
would hit back after the Trump administration raised the stakes
in their trade dispute, threatening 10 percent tariffs on $200
billion of Chinese goods.*:nL4N1U71IM
    Some analysts downplayed the announcements.
    "The market is currently in 'show-me' mode," said Boris
Schlossberg, managing director of FX strategy at BK Asset
Management, "and feels that the worst excesses of tariffs could
be negotiated away."  
    "I think most investors are looking at this trade war and
thinking 'it's not going to happen'," said Michael Diaz, head of
foreign exchange at XE. 
    The dollar index  .DXY , which measures the currency against
a basket of six rivals, was up 0.7 percent over the day to a
high of 94.702.
    The biggest losers were the offshore Chinese yuan  CNH= ,
which skidded towards an 11-month low, and the Australian dollar
 AUD= , which fell as much as 1.2 percent.*:nL4N1U71IM
    Expectation-beating inflation data propelled the dollar
higher, save for a brief dip in midday trading caused by a jump
in the euro. U.S. producer prices rose in June amid gains in the
cost of services and motor vehicles, leading to the biggest
annual increase in 6-1/2 years.*:nL1N1U61NG 
    The Labor Department data supports views of steadily rising
price pressures, which could encourage the Fed to increase
interest rates twice more this year. Rising rates would curb
inflation and increase the value of the dollar. 
    Wednesday saw strong flows into the dollar/Japanese yen
trade, continuing a trend that began after the United States
last week reported decent employment data and a pickup in wages.
The dollar strengthened against the yen to a top of 111.99, its
highest since Jan. 10. 
    Both the yen and the dollar act as safe-haven investments,
but the strength of the greenback against the yen suggest
investors are reflecting faith in the U.S. economy rather than
seeking safety. 
    After a brief respite following news that European Central
Bank policymakers may increase the pace of rate hikes, the euro
fell back near daily lows, last at $1.168. Against the dollar,
the euro fell in early trade after Washington's tariff
    The Canadian dollar  CAD=  whipsawed after the Bank of
Canada increased interest rates as expected. After its initial
0.8 percent rally, the loonie swooned when policymakers said  
U.S. tariffs would have had a bigger effect on the economy than
they had originally anticipated.*:nL1N1U70MS

 (Reporting by Kate Duguid; Additional reporting by Tommy Wilkes
and Saikat Chatterjee;
Editing by Jane Merriman, Dan Grebler and Susan Thomas)
 ((; +646-223-6118; Reuters

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