Retaliatory tariffs by China boost dollar, weaken yuan

NEW YORK: Retaliatory trade tariffs by China helped give the US dollar a mild boost on Wednesday while sterling slid to an 11-month low on concerns about Britain's exit from the European Union.

China is laying additional import tariffs of 25 percent on $16 billion worth of US goods ranging from oil and steel products to autos and medical equipment, the commerce ministry said.

That came in response to the United States' decision to impose 25 percent tariffs on another $16 billion of Chinese goods starting on Aug. 23.

"With the news of the retaliatory tariffs from China there is a move towards dollar buying playing out at the moment," said Bipan Rai, North American head, FX strategy at CIBC Capital Markets in Toronto.

Trade tensions have been viewed as positive for the greenback as the US economy is seen as better placed to handle the disputes than emerging markets.

The dollar index rose as high as 95.417, near a more than one-year high of 95.652 hit on July 19, before dropping back to 95.234, up 0.02 percent on the day. The index has struggled to break much above the 95.5 level, which it has tested multiple times in the past two months.

The yuan weakened by 0.23 percent on the day to 6.8345 per dollar.

The pound dropped to its lowest levels against the dollar and euro in almost a year as markets ramped up bets on Britain leaving the EU without an agreement with Brussels.

"Markets are slowly starting to price in a higher and higher chance of a 'no deal' type scenario with Brexit," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.

The Canadian dollar dropped to a two-week low against the greenback as the country's row with Saudi Arabia escalated. The Financial Times on Wednesday reported that the Saudi Central Bank and pension funds have instructed their overseas asset managers to dispose of Canadian assets.

"Some selling by a significant owner of Canadian assets will leave a mark on the Canadian dollar," said CIBC's Rai.

The yen gained after reports that Bank of Japan board members had disagreed on how far interest rates should be allowed to move from the central bank's target.