April 4, 2018 / 8:20 AM / 17 days ago

FOREX-Currency markets keep wary eye on trade troubles

* Dollar slips vs yen but broadly flat

* Currency markets calm in face of trade tensions

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, April 4 (Reuters) - Foreign exchange markets trod water on Wednesday, with investors seemingly unable to make up their minds about any wider fallout from a Sino-U.S. trade dispute, though the safe-haven Japanese yen gained versus the dollar.

Those tensions have overshadowed a bounce in U.S. stock markets and prompted a broader reluctance to take on new positions in risk assets.

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 percent 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 U.S. currency stabilise after recent declines.

The euro slipped 0.1 percent versus the dollar to $1.2264 . Against a basket of major currencies, the dollar was down 0.1 percent at 90.102.

Data on Wednesday could return investors’ focus to central bank policy, at least in the euro zone.

Euro zone inflation numbers due at 0900 GMT 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.

ESCALATIONS

The Korean won fell 0.5 percent 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 percent 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 U.S. 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.

“The dollar will probably be weighed down, and a rise towards 108 yen seems unlikely,” Okagawa said.

At the same time, dollar-selling needs among Japanese players have abated now that Japan’s end-March financial year-end is out of the way, and that could limit the dollar’s downside risk, said Okagawa, who expects the U.S. currency to trade in a 104 yen to 108 yen range in the near term.

Investors are also focused on U.S. payrolls data and comments by Federal Reserve Chairman Jerome Powell on Friday, which should help determine the dollar’s direction.

The Australian dollar rose as much as 0.4 percent to $0.7712 , getting a boost after data showed a larger-than-expected rise in Australian retail sales in February. (additional reporting by Masayuki Kitano in SINGAPORE; editing by John Stonestreet)

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