FOREX-Dollar inches up as recession fears persist

(Recasts, new throughout)
By Kate Duguid
NEW YORK, Aug 28 (Reuters) - The dollar rose on Wednesday,
but the moves were small and range-bound as a deepening
inversion of the U.S. yield curve stoked investor anxiety about
a recession just days before U.S. and Chinese retaliatory
tariffs on each other's imports are set to go into effect.
Two-year U.S. government bond yields US2YT=RR rose further
above 10-year yields US10YT=RR to a spread as low as minus 6.5
basis points US2US10=TWEB . The spread, which signals coming
recession when it falls below zero, was last at minus 3.7 basis
points. Investors are worried the U.S.-China trade war could tip
the world into an economic slowdown.
The U.S. Trade Representative's office on Wednesday
reaffirmed President Donald Trump's plans to impose an
additional 5% tariff on a list of $300 billion of Chinese
imports starting on Sept. 1 and Dec. 15. The safe-haven yen stood at 106.07 per dollar JPY= , 0.32%
weaker on the day, but nevertheless close to its 2-1/2-year high
of 104.44 hit on Monday.
Much of the decline in dollar/yen since last week is due to
investors becoming more risk-averse, said Adam Cole, currency
strategist at RBC Capital Markets. The dollar bid on Wednesday,
however, was unlikely to be the result of a risk-off move.
"We continue to believe that any reversal in recent risk-off
price action is likely to be an occasion to get out of long
positions in risky assets and to add exposure to defensive
trades from more attractive levels. We therefore caution against
entering pro-risk trades for the time being," wrote analysts at
Credit Suisse.
The dollar index, which measures the U.S. currency against a
basket of six currencies, rose 0.25% to 98.248 .DXY . The
Chinese yuan edged lower to 7.169 CNH= in offshore markets,
not far from the record low of 7.186 it touched on Monday.
Elsewhere, sterling slumped as much as 1% against the euro
and the dollar on British Prime Minister Boris Johnson's move to
limit parliament's opportunity to derail his Brexit plans.
The prime minister will formally open parliament on Oct. 14,
effectively shutting Westminster for around a month in
September, which reduces the time in which lawmakers could try
to block a no-deal Brexit.
Sterling was last down 0.62% at $1.2211 GBP= and 0.55%
lower versus the euro at 90.70 pence EURGBP= .
The euro was slightly weaker against the dollar EUR= , down
0.12% at $1.1077, little helped by the news that Italy's 5-Star
Movement and the opposition Democratic Party would try to form a
coalition, averting a snap election.

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GRAPHIC: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
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