NEW YORK (Reuters) - The dollar and yen 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. U.S. equity prices eventually pared their initial drop, which reduced the yen and greenback’s earlier safe-haven gains.
“We are seeing the dollar and yen outperforming most of their peers especially those riskier, high-yielding currencies and those currencies more affected by disruptions in global trade,” said Omer Esiner, chief market strategist with Commonwealth Foreign Exchange in Washington.
The index that tracks the greenback against the euro, yen, sterling and three other currencies .DXY reached 95.296, the highest since last July. It was last up 0.20 percent at 95.987.
The yen climbed 0.5 percent at 109.97 yen per dollar JPY=, while it advanced 0.8 percent versus the euro to 127.43 yen EURJPY= after hitting its strongest level in over two weeks.
Among the day’s losers, the yuan weakened to 6.4948 to the dollar in the offshore market CNH=D3, the lowest in five months, before easing to 6.4800 in late U.S. trading.
“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 AUD=D4 sagged to a one-year low of $0.73475 as the trade tension hurt base metal prices CMCU3.
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. CAD=D4
Trump said on Tuesday progress was being made in trade talks between the U.S., Canada and Mexico, but he did not rule out clinching bilateral deals if a three-way agreement cannot be reached.
In emerging markets, the South African rand ZAR= tumbled to its weakest level in nearly seven months at 13.7895 rand per dollar.
In addition to trade concerns, the euro EUR= 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.
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 destabilize her three-month-old coalition.