Dollar rebounds as trade worries hurt high-yielding currencies

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The dollar rose across the board on Tuesday, as lingering global trade tensions prompted traders to ditch most high-yielding currencies and investors focussed on expectations the Federal Reserve will continue to raise interest rates.

The dollar index , which measures the greenback against a basket of six currencies, was up 0.49 percent at 94.74, on pace to snap a four-day losing streak. The index slipped 0.9 percent over the last four sessions.

The greenback, which fell 0.2 percent against the safe-haven Japanese yen on Monday, recouped losses to trade up 0.3 on Tuesday.

U.S. and European stock markets steadied a day after tumbling on conflicting signals from the Trump administration over proposed restrictions on foreign investment in U.S. technology companies, along with signs that recently imposed import tariffs are starting to disrupt supply chains. China was in bear market territory.

"The risk aversion move that had gripped the market is easing off a little bit today," said Gary Kerdus, global payments executive for XE.com, in Orange County, California.

"I still think the dollar has room to strengthen across the board, considering that (U.S.) monetary policy is more hawkish than other central banks," he said.

Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday he believes the U.S. central bank's monetary policy is still accommodative and suggested it could raise rates at least two more times before it stops being accommodative.

Despite some cooling of trade-related concerns, investors unwound bets on high-yielding currencies.

"There is a clear implication that potential trade wars have on high-yielding currencies, riskier currencies, on currencies whose economies are highly sensitive to trade," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Trade-sensitive currencies like the Canadian dollar and the Australian dollar slipped against the greenback.

"I don't think they (traders) are really too keen to take on any massive positions in high-risk type of currencies, primarily because of the tariff uncertainties," said Kerdus.

The Chinese currency weakened to a six-month low as expectations grew that Beijing will let the yuan weaken more in coming days to soften the impact of tariffs by the United States.

"This is yet another tool at the disposal of policymakers in Beijing and it's something that's not been in focus over the past couple of years - the undervaluation of the yuan against the dollar," said Esiner.

"It's not a big issue for now, but could become more of an issue for the dollar if the U.S. administration responds in kind," he said.

The pound was 0.45 percent lower versus the dollar after what traders saw as dovish comments from incoming Bank of England rate-setter John Haskel about the uncertainty of the economic impact of Brexit.

(Reporting by Saqib Iqbal Ahmed; Editing by David Gregorio and Meredith Mazzilli)