June 27, 2018 / 8:07 AM / 3 months ago

FOREX-Euro inches higher as trade war fears hurt dollar; yuan slides

* Euro approaches $1.17 but political risks remain

* Dollar flat but surges to fresh 6-month high vs yuan

* Yen gains on risk aversion; Aussie near 13-month low

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

By Tommy Wilkes

LONDON, June 27 (Reuters) - The euro rebounded on Wednesday as concerns about an escalating trade conflict held back the dollar, while traders said markets needed clarity on a developing political crisis in Germany and an EU summit before pushing the euro higher.

Worries that a full-blown trade war could break out between Beijing and Washington continued to weigh on currencies, despite data showing profits at China’s industrial firms rose sharply.

The yen, a prominent gauge of investor risk aversion, gained while the Chinese yuan slumped to a 6-month low.

The euro rose 0.2 percent to $1.1668 after suffering falls overnight, while the dollar edged lower, its index against a basket of currencies down 0.1 percent at 94.559.

“This trade dispute ...will remain a big driver of currency markets,” Thu Lan Nguyen, an analyst at Commerzbank in Frankfurt said.

“Within Europe specifically the focus is on the EU summit this week. I don’t see the euro exchange rate going one way or another in particular until you see some clarity on the summit,” she said.

A row over migration among the governing coalition partners in Germany would also limit gains for the single currency.

Underlining investor caution about global trade relations, equity markets in Asia slipped across the board on Wednesday and stock markets in Europe opened weaker.

The yuan skidded to as low as 6.6162 yuan , its weakest since December, after the People’s Bank of China (PBOC) lowered the currency’s midpoint for the sixth straight day to its weakest in six months.

The yuan slumped on Tuesday on expectations that Beijing would let the currency weaken further to soften the impact of the trade tariffs imposed by the United States.

Against the dollar, the yen rose 0.2 percent to 109.79 yen .

“The dollar lacks guidance from U.S. yields, which have been directionless. Furthermore, it is difficult to gauge whether the Trump administration is poised to become even more conservative towards trade issues or if it wants to ease its stance,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The 10-year U.S. Treasury note yield was unchanged at 2.882 percent. The yield has been confined in June to a 15-basis-point range after fluctuating by nearly 40 basis points in May, during which it touched a seven-year high of 3.128 percent.

The trade-sensitive Australian dollar earlier fell 0.3 percent to $0.7371, edging back towards a 13-month low of $0.7345 plumbed last week. It later recovered and traded flat on the day. (Additional reporting by Shinichi Saoshiro in TOKYO; editing by John Stonestreet)

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