Dollar index gains, adds 5% quarterly gain, as trade uncertainty weighs

The U.S. dollar gained Wednesday against most rivals, save for the haven yen, while Chinas yuan carved out a fresh six-month low, as nagging worries that a full-blown trade war could break out between Beijing and Washington drives currency trading.

The ICE U.S. Dollar Index
DXY, +0.19%
was up 0.1% at 94.73. The dollar gauge, which pegs the U.S. unit against six rivals and is weighted toward the euro, is on track to log a roughly 5% gain in the quarter. It is up 2.7% since the beginning of the year, lifted by U.S. interest-rate hikes that well outpace any monetary policy action in the rest of the industrialized world. The broader WSJ Dollar Index
BUXX, +0.15%
was up 0.1% at 88.05 Wednesday.

Europes single currency
EURUSD, -0.1803%
dropped 0.1% to $1.1633 after earlier falling to $1.1622, its weakest since June 22.

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Dollar is on quite a roller-coaster ride these days, again related to trade, said Marshall Gittler, chief strategist at ACLS Global, in a note.

[President] Trump seemed to back off on his trade wars are good, and easy to win position and said he favored Treasury Secretary Mnuchins less confrontational approach to trade with China.

Several other administration officials weighed in with similar comments, perhaps stung by iconic U.S. motorcycle producer Harley-Davidsons announcement that theyd be moving some production over to Europe as a result of the tariffs, he said. As a result U.S. stocks managed to eke out a small gain and the VIX [stock volatility] index fell, indicating some return of confidence, which helped to boost dollar.

Stocks were indicated lower early Wednesday.

Chinese President Xi Jinping on Wednesday warned the countrys provinces and ministries to prepare for a full-scale trade war if the U.S. follows through and hits China with a range of tariffs on goods, according to an unconfirmed report from SGH Macro Advisors.

Trade tensions had supported haven currencies like the Japanese yen
USDJPY, +0.14%
against the dollar. The buck last fetched 楼109.86, down about 0.2%, from the 楼110.03 quoted late Thursday in New York.

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The yuan, both in its more restricted onshore form
USDCNY, +0.3146%
and more freely traded offshore form
USDCNH, +0.2552%
continued to drop against the greenback, marking a fresh six-month low at 6.6195.

Chinas central bank appeared to intervene to stem the yuans decline on Wednesday, traders said, after it had earlier set the currency at a six-month low against the U.S. dollar. At least one state-owned bank, which has traditionally acted as the central banks agent when it intervenes in markets, sold large amounts of dollars after the U.S. currency breached the 6.60 level against the yuan, traders said.

Soci茅t茅 G茅n茅rale analysts said in a note they expect trade tensions, and any risk to global growth, could mean the salad days of the current economic cycle are probably behind us.

Rachel Koning Beals

Rachel Koning Beals is a MarketWatch news editor in Chicago.

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Quote References DXY +0.18 +0.19% BUXX +0.13 +0.15% EURUSD -0.0021 -0.1803% USDJPY +0.16 +0.14% USDCNY +0.0207 +0.3146% USDCNH +0.0168 +0.2552% Show all references
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