Dollar struggles near two-week lows as tensions persist

© Reuters. U.S. Dollar banknotes are seen in this photo illustration

By Saikat Chatterjee

LONDON (Reuters) – The dollar held near a two-week low on Thursday against a basket of currencies as investors remained cautious over possible Western military action against Syria, while the euro was also steady before minutes of the ECB’s March meeting.

Hawkish minutes from the U.S. Federal Reserve in the previous session did little to lift the dollar, with U.S. Treasury yields soft and European stocks subdued after a weak Asian session.

“The broad theme in the currency market this week has been risk appetite, and today (this) … is pretty cautious because of the geopolitical risks,” said Adam Cole, head of G10 currency strategy at RBC Capital Markets in London.

The dollar was flat against the basket at 89.57, just above a two-week low of 89.35 hit on Wednesday. ()

The political tensions shifted some of the market’s focus away from a lingering trade standoff between Washington and Beijing, with the dollar inching up 0.1 percent to 106.88 yen after losing 0.4 percent on Wednesday. The yen often draws demand in times of uncertainty.

The risk overhang has also pressured carry trades, in which investors buy low-yielding currencies – the yen has appreciated more than 5 percent so far this year – to invest in relatively higher-yielding ones.

Bilal Hafeez, an FX strategist at Nomura said the broad economic and risk backdrop has become unstable after 2017 saw booming stock markets, synchronized global growth and benign inflation.

“This year is seeing all these reverse,” he said.

The euro held steady at $1.2362 (), stabilizing after gains in recent sessions. The euro has gained 0.7 percent so far this week, as comments from European Central Bank officials reinforced views that the bank is on track to normalize monetary policy.

Minutes from the ECB’s March meeting are due at 1130 GMT.

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