The dollar, yen and Swiss franc rose on Tuesday as traders piled into perceived less risky currencies after U.S. President Donald Trump threatened to slap more tariffs on China, fanning a trade dispute between the world's two biggest economies.
Trump said he would impose a 10 percent tariff on $200 billion of Chinese goods, following levies on $50 billion worth of Chinese imports enacted last week. China's commerce ministry warned on Tuesday that Beijing would fight back firmly with "qualitative" and "quantitative" measures if the United States implements more tariffs.
Fears of a trade war that could harm global growth spurred sales of the Chinese yuan, which fell to a five-month trough in the offshore market, as well as commodity-linked and emerging market currencies. Worries about a growing U.S.-China trade spat also sparked a selloff in stock markets around the world.
"A pending trade war and a selloff in global equities is benefiting the yen and dollar," said John Doyle, vice president of dealing and trading at Tempus Inc in Washington. "Emerging market currencies, especially the South African rand, are taking the bulk of the heat."
The index that tracks the greenback against the euro, yen, sterling and three other currencies reached 95.296, the highest since last July. It was last up 0.23 percent at 95.02.
The yen climbed 0.45 percent at 110.04 yen per dollar, while it advanced 1 percent versus the euro to 127.09 yen, its strongest in over two weeks.
The Swiss franc increased 0.6 percent against the euro at 1.1495 franc and was marginally higher versus the greenback at 0.9948 franc.
Among the day's losers, the yuan weakened to 6.491 to the dollar in the offshore market, the lowest in five months.
"Of course a far-reaching trade war would be detrimental for everyone in the end, but mainly the countries whose growth heavily depends on foreign trade," said Commerzbank currency strategist Thu Lan Nguyen in Frankfurt.
The Australian dollar sagged to a one-year low of $0.73475 as the trade tension hurt base metal prices.
The Canadian dollar fell to a one-year low of C$1.3291 on worries about Canada's own trade feud with the United States.
In emerging markets, the South African rand tumbled to its weakest level in nearly seven months at 13.7895 rand per dollar.
In addition to trade concerns, the euro slumped to a two-week low of $1.1528 after European Central Bank President Mario Draghi called for a patient approach to European monetary policy at a forum in Portugal. It was last down 0.34 percent at $1.1583.
The single currency was also under pressure as German Chancellor Angela Merkel's Bavarian allies may defy her by implementing a plan to limit immigration at the German border, which could destabilise her three-month-old coalition.