FOREX-Dollar hits 6-month high against yen on strong inflation

Reuters

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

 (Recasts with mounting trade tensions)
    By Kate Duguid
    NEW YORK, July 11 (Reuters) - The U.S. dollar strengthened
against the Japanese yen on Wednesday as trade tensions mounted
and after the Labor Department's expectation-beating inflation
report, which increased prospects that the Federal Reserve will
raise interest rates another two times this year.
    The dollar broke through the psychologically significant
barrier of 112 yen  JPY=  for the first time since Jan. 10,
rising as much as 1.3 percent to 112.17 yen. The day'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 pick-up in wages. 
    Both the yen and the dollar are favored as safe-haven
investments, but the strength of the greenback suggests investor
faith in the U.S. economy rather than a bid for safety.
    Pushing the greenback past 112 yen "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.
    Not all analysts viewed trade tensions as a hindrance to the
dollar. A Bank of America survey last week reported that
investor thinking had shifted since the spring, and the market
saw potential dollar-positive implications from a trade war, as
the United States would be better equipped to weather a slowdown
in trade than other major economies. 
    China on Wednesday accused the United States of bullying and
warned it would hit back after the Trump administration raised
the stakes in the trade dispute between the world's two largest
economies, threatening 10 percent tariffs on $200 billion of
Chinese goods.  urn:newsml:reuters.com:*:nL4N1U71IM
    The dollar index  .DXY , which measures the greenback
against a basket of six rivals, was up 0.7 percent to a high of
94.77.
    The biggest losers were the offshore Chinese yuan  CNH= ,
which skidded toward an 11-month low, and the Australian dollar
 AUD= , which fell as much as 1.3 percent. 
    The U.S. inflation data propelled the dollar higher, save
for a brief dip in midday caused by a jump in the euro. U.S.
producer prices rose in June, with 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. 
    The Canadian dollar  CAD=  whipsawed after the Bank of
Canada increased interest rates as expected. After an initial
0.8 percent rally, the loonie swooned more than 1.2 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 Richard Chang and Leslie Adler)
 ((kate.duguid@thomsonreuters.com; +646-223-6118; Reuters
Messaging: kate.duguid@thomsonreuters.com@thomsonreuters.net))

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