Trade worries stoke safety bids for yen, Swiss franc

Key Points
  • Euro under pressure as ECB seen holding rates into H2 2019
  • Dollar steadies on trade tension, further U.S. rate hikes
  • Chinese yuan falls to 5-month lows in offshore market
A £10 note is seen alongside euro notes and US dollar bills.
Matt Cardy | Getty Images

Anxiety about a global trade war spurred demand on Monday for the Japanese yen and Swiss franc, while the euro remained under pressure due to a dispute in Germany's governing coalition and the European Central Bank seen holding interest rates into 2019.

The dollar was supported by some safe-haven demand and signals from the Federal Reserve that it would increase overnight borrowing costs due to a tightening labor market and rising inflation.

The ongoing trade dispute between the United States and China knocked the yuan to 6.4600 per dollar, its weakest in five months in the offshore market.

On Friday, the White House enacted tariffs on $50 billion in Chinese goods. Beijing quickly responded with a 25 percent levy on 659 U.S. products, ranging from soybeans and autos to seafood.

"It's tough to say whether it will spiral further because it's so fluid. It does weigh on sentiment at times," said Eric Viloria, currency strategist at Wells Fargo Securities in New York. "Our base case is that there won't be a trade war."

The was up 0.15 percent against the dollar at 110.49 yen and almost 0.1 percent higher versus the euro at 128.37 yen in afternoon trading.

The Swiss franc notched 0.24 percent increases against the greenback and the euro at 0.9942 and 1.1551 , respectively.

The dollar was up 0.09 percent against the euro at $1.1617 after the Fed flagged more rate hikes are coming and the ECB signaled it will likely keep rates near a record low into the summer of 2019.

The euro has steadied after on Thursday suffering its biggest one-day drop against the dollar since Britain voted to leave the European Union two years ago.

Tensions with the governing coalition in Germany also weighed on the single currency. Chancellor Angela Merkel's Bavarian allies may defy her by implementing a plan to limit immigration at the German border and risk destabilizing her three-month-old coalition.

The dollar is "in a consolidation phase in the near term," Viloria said. "People are looking for economic data that show more improvement outside the U.S."

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