The dollar rose against most major currencies on Thursday in thin summer trading, as investors bet global trade tensions and a robust U.S. economy would continue to support the currency.
The greenback has the upper hand in a trade war scenario over emerging markets, analysts said, and tariffs may actually narrow the U.S. trade deficit. Better-than-expected data on U.S. initial jobless claims and generally rising producer prices also helped the dollar hold its gains.
"While firmer, the dollar kept to a narrow range with traders awaiting U.S. inflation data on Friday to help shape its short-run prospects," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington. "Higher consumer prices, which are on the cards, would be supportive of both the dollar and the Federal Reserve, raising rates further this year."
The dollar's gains, however, have been more pronounced against emerging market currencies because an escalation in the U.S.-China trade war would hit their export-oriented economies harder.
The dollar index, which tracks the dollar versus a group of six currencies, was up 0.4 percent at 95.43. It rose to a year-high of 95.652 on July 19 but has since struggled to break much above the 95.5 level.
Thursday's big mover was the New Zealand dollar, which fell 1.84 percent to US$0.6621, after earlier plunging to U.S.$0.6634, its lowest since March 2016. The kiwi tumbled after the Reserve Bank of New Zealand on Thursday unexpectedly committed to keeping interest rates at record lows through to 2020 on disappointing economic activity, a dovish turn that caught markets off-guard.
In an apparent reflection of concern among investors about an uptick in geopolitical tensions, including the U.S.-China trade war and Brexit, the Japanese yen rose broadly before trading flat against the dollar. Global foreign exchange markets this summer have been dominated by political angst from U.S. sanctions on Russia and Turkey to rising tensions in the Middle East and in Europe.
The Russian rouble retreated to its lowest since November 2016 overnight, weakening beyond the psychologically important 65 per dollar threshold, after Washington said it would impose fresh sanctions on Moscow .
The euro, meanwhile, remained in the red against the dollar, down 0.48 percent at $1.1554.
Sterling on Thursday continued to slide, hitting $1.285 following a drop to $1.2854 the previous day. The pound is weakening as investors ramp up bets Britain will leave the European Union without an agreement with Brussels on their future relationship.