FOREX-Dollar gains sustained by trade war risk, rising inflation

Reuters

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 (Adds analyst quote, updates prices, headline, lead)
    By Kate Duguid
    NEW YORK, July 12 (Reuters) - The U.S. dollar held steady at
a six-month high against the Japanese yen and a two-month high
against the Swiss franc on Thursday, bolstered by solid
inflation data and investor sentiment that the greenback stands
to benefit from a trade war.   
    The yen  JPY=  and the Swiss franc  CHF=  are favored as
safe-haven investments. But against the dollar, both have
weakened in the past week as trade tensions between the United
States and China have mounted. That suggests investors believe
the greenback is better suited to withstand trade volatility, as
a safe-haven investment or as a beneficiary of new policies.
    "The U.S. dollar has been playing more of a role as a
safe-haven," said Juan Perez, currency trader at Tempus, Inc in
Washington. 
    The dollar/yen rally is in its seventh trading day, with the
dollar having broken through the psychologically significant
barrier of 112 yen for the first time since Jan. 10 on
Wednesday. On Thursday, the dollar hit a fresh six-month high
against the Japanese currency of 112.62. 
    The Swiss franc weakened by 0.8 percent over the day,
jumping over the one franc threshold; at its strongest on
Thursday, 0.995 franc bought one U.S. dollar, at its weakest, it
took 1.003.  
    "(A trade war) is probably good for the dollar," said Greg
Anderson, global head of FX strategy at BMO Capital Markets.
That's because "the U.S. has a trade deficit currency, and so if
you find a way to reduce that trade deficit and you have the
same financial flows, then all of the sudden, flows are going to
be positive for the dollar, at least relative to where they
were."  
    The dollar maintained gains made on Wednesday against most
major currencies thanks in part to a report of U.S. consumer
prices on Thursday which showed a steady buildup of inflation
pressure that could keep the Federal Reserve on a path of
gradual interest rate increases.  urn:newsml:reuters.com:*:nL1N1U71L6
    That followed Wednesday's report that U.S. producer prices
rose in June, leading to the biggest annual increase in 6-1/2
years.  urn:newsml:reuters.com:*:nL1N1U61NG
    Strong economic data has underpinned the dollar's recent
strength. "(The dollar) has been kept afloat because in quarter
one and quarter two the economic indicators across the spectrum
were positive," said Perez.  
    The eurodollar  EUR=  fell in overnight trade on Wednesday,
retracing earlier gains, but maintained levels around $1.167
throughout Thursday.  
    Stock markets in China  .SSEC  rose more than 2.6 percent
and the offshore yuan  CNH=  climbed 0.9 percent, boosting
appetite for risky assets and helping push the dollar higher.

 (Reporting by Kate Duguid; additional reporting by Saikat
Chatterjee
Editing by Jonathan Oatis and Alistair Bell)
 ((kate.duguid@thomsonreuters.com; +646-223-6118; Reuters
Messaging: kate.duguid@thomsonreuters.com@thomsonreuters.net))

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