April 4, 2018 / 11:31 AM / 6 months ago

FOREX-Currency markets keep wary eye on trade troubles

* Dollar slips vs yen, euro

* Markets edgy in face of trade tensions

* Yuan, won slide after China trade retaliation

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

By Tommy Wilkes

LONDON, April 4 (Reuters) - Foreign exchange markets mostly 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 yen gained after the latest salvo from Beijing.

Those tensions have prompted a broader reluctance to take on new positions in risk assets. European share markets fell back again on Wednesday, failing to build on the previous day’s rebound in U.S. stocks.

Asian currencies including the Chinese yuan and Korean won, both exposed to global trade flows, fell further after China quickly hit back at U.S. plans to slap tariffs on $50 billion of Chinese goods.

But broader currency moves were limited. The dollar dipped only slightly, as some traders bet the row would damage the currency while others remained confident fallout 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.”

Still, the dollar did fall more heavily against the yen.

The yen gained as much as half a percent to hit a session high of 105.99 yen per dollar before settling back at 106.175 yen.

The greenback had on Tuesday gained on the yen, viewed by many as a good currency to back in a trade war, as risk appetite improved.

Against a basket of major currencies, the dollar was down 0.1 percent at 90.104.

The euro rose 0.1 percent versus the dollar to $1.2284 .

Euro zone inflation published on Wednesday increased in line with expectations in March, providing modest support to a European Central Bank push to wind down its stimulus programme.

After a strong start to 2018, the euro has been stuck in a trading range versus the dollar after the ECB cautioned against expectations it would soon curtail its asset purchases.

“Even though ECB mainly targets headline inflation, the latest data does little to central bank monetary policy expectations,” Manuel Oliveri, FX strategist at Credit Agricole said in Reuters’ Global Markets Forum.

“I believe from a broader angle one still has to keep in mind that price and growth conditions have been improving and that is at least putting a floor below policy expectations and the (euro) currency.”

Investors are also focused on U.S. payrolls data and comments by Federal Reserve Chairman Jerome Powell on Friday.

YUAN, KOREAN WON SLUMP

The yuan suffered its biggest one-day loss versus the dollar since mid-February, down 0.6 percent at 6.3094 yuan per dollar.

The Chinese currency has been strengthening this year as traders question whether Beijing can intervene in markets to limit its rise.

The Korean won fell more than 1 percent against the dollar to 1058.57 won, its biggest one-day fall since March 22. Investors are worried that a Korean economy so exposed to international trade flows could be hurt by any knock to global growth.

The Australian dollar initially rose as much as 0.4 percent to $0.7712 after data showed a larger-than-expected rise in Australian retail sales in February. It later fell back 0.1 percent to $0.7674 (additional reporting by Masayuki Kitano in SINGAPORE; editing by John Stonestreet)

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