Dollar Hits Highest Since August as Trade Tensions Favor Havens

US dollar banknotes.

(Bloomberg) -- The dollar advanced against most major peers after fresh trade frictions with China rattled risk assets and sent investors looking for havens.

The Bloomberg Dollar Spot Index rose 0.3% to its strongest since Aug. 1, rallying along with government bonds as stocks fell. Currency losses were led by the Australian dollar, dropping 1% to its weakest in nearly two months, while the pound hit a fresh two-month low following UK labor data.

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The greenback’s “renewed status” as a haven and a “few extra bits of bullish dollar momentum” could support the currency in the near term, wrote ING analysts Chris Turner and Francesco Pesole.

Options markets show demand for bullish dollar exposure has picked up, most notably against the pound, the Australian dollar and the Canadian dollar. Traders are taking the other side of the trade when it comes to the yen, which is leading G-10 currencies on Tuesday.

“Should markets find reasons to ease their nerves about the Japanese political situation, the undervalued yen is in a prime spot to benefit from further escalation,” said Turner and Pesole.

Traders are also watching a keynote speech by Federal Reserve Chair Jerome Powell later on Tuesday for clues on whether recent market pricing on the central bank’s outlook has turned too dovish.

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