Currencies: Trade turmoil sparks flight to haven currencies, as yen and dollar rally

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The yen and dollar rallied against other major currencies on Tuesday, as fears of an escalating trade conflict between the world’s two biggest economies sent investors looking for shelter.

Trade tensions between the U.S. and China have been on the rise recently, but they intensified significantly on Monday when U.S. President Donald Trump threatened to slap up to $400 billion more in tariffs on Chinese goods, on top of the $50 billion his administration has already detailed.

China responded on Tuesday, saying Beijing will have no choice but to take comprehensive measures in response to the U.S.’s trade moves.

The yen
USDJPY, -0.61%
 — a traditional haven currency — rallied on the heightened tensions. The dollar bought ¥109.71, compared with ¥110.55 in late New York trade on Monday, while the
EURJPY, -1.27%
 fetched ¥126.76, compared with ¥128.50 on Monday.

The dollar fared well against major currencies other than the yen, and that helped lift the U.S. ICE Dollar Index
DXY, +0.49%
 0.3% to 95.119.

The euro
EURUSD, -0.6711%
 dropped to $1.1553 from $1.1624 late Monday. The shared currency moved a leg lower Tuesday after European Central Bank President Mario Draghi said that “significant monetary policy accommodation is still needed” to support inflation.

Speaking at an ECB event in Sintra, Portugal, the central bank boss said that the threat of protectionism and rising oil prices are posing a risk to economic recovery in the eurozone.

Meanwhile, in the U.K., the pound
GBPUSD, -0.5210%
 dropped below $1.32 for the first time since November, changing hands at $1.3185, compared with $1.3245 on Monday.

The plunge in sterling came as U.K. Prime Minister Theresa May faced more pressure over Brexit ahead of a House of Commons vote Wednesday on an amendment to the divorce bill, needed for the U.K. to legally leave the European Union. The U.K.’s upper house — the House of Lords — on Monday delivered May another defeat, backing a vote to give parliament more say on the final exit agreement.

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