FOREX-Dollar hits 6-month high against yen as trade fears trumped

Reuters

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

 (Adds analyst quote, updates prices)
    By Kate Duguid
    NEW YORK, July 11 (Reuters) - The U.S. dollar strengthened
on Wednesday as the market put aside trade tension fears and
focused on the Labor Department's expectation-beating inflation
report, which increased prospects that the Federal Reserve will
raise interest rates another two times this year.
    Against the Japanese yen  JPY= , the dollar broke through
the psychologically significant barrier of 112 yen for the first
time since Jan. 10, rising as much as 1.3 percent to a top of
112.17 yen. Wednesday's strong flows into the dollar/yen trade
continued a trend that began after the United States last week
reported decent employment data and a pickup in wages. 
    Both the yen and the dollar act as safe-haven investments,
but the strength of the greenback against the yen suggests
investors are reflecting faith in the U.S. economy rather than
seeking safety.
    Pushing past 112 "would suggest the market is bullish on the
dollar irrespective of the trade war," said Boris Schlossberg,
managing director of FX strategy at BK Asset Management.
    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.  urn:newsml:reuters.com:*:nL4N1U71IM
    Some analysts downplayed the announcements. "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 94.77.
    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.  urn:newsml:reuters.com:*: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.  urn:newsml:reuters.com:*: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. 
    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 $1.17.
    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 more than 1.1 percent when
policymakers said U.S. tariffs would have a bigger effect on the
economy than originally anticipated.  urn:newsml:reuters.com:*:nL1N1U70MS

 (Reporting by Kate Duguid; Additional reporting by Tommy Wilkes
and Saikat Chatterjee;
Editing by Susan Thomas and Richard Chang)
 ((kate.duguid@thomsonreuters.com; +646-223-6118; Reuters
Messaging: kate.duguid@thomsonreuters.com@thomsonreuters.net))

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