LONDON: The dollar held near one-week lows on Wednesday as the sudden dismissal of US Secretary of State Rex Tillerson and news that Washington is seeking to impose tariffs of up to $60 billion of Chinese imports reverberated through currency markets.
The prospect of a global trade conflict has weighed on the dollar and any escalation would significantly weaken it further. The greenback has been supported by growing expectations of as much as four rate hikes this year.
"The US administration has slipped further into chaos and the current Trump-induced dollar weakness can have an effect for some time, but not forever as fundamental forces come to the fore," said Ulrich Leuchtmann, an analyst at Commerzbank.
The dollar index broadly flat at 89.56, its lowest level since March 8 and within striking distance of a one-month low of 89.40.
Against the yen, the dollar was flat at 106.640 yen , having slipped overnight from a two-week high of 107.300 reached after wariness over a political controversy in Japan waned slightly.
US President Donald Trump is seeking to impose tariffs on up to $60 billion of Chinese imports and will target the technology and telecommunications sectors, two people who discussed the issue with the Trump administration said on Tuesday.
The news comes before a crucial G20 meeting next week where the world's leaders will pledge to fight unfair trade practices and stress the role of global trade rules in the backdrop of a brewing trade war.
The greenback also lost some traction after February US inflation data out on Tuesday matched expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.
Elsewhere, the euro hit the day's lows after ECB President Mario Draghi struck a dovish tone in his speech.
The single currency was down 0.2 percent on the day, at $1.2364.
The European Central Bank needs further evidence that inflation is rising towards its target but is also growing more confident that it is on track to do so, ECB President Mario Draghi said on Wednesday.
The pound rose about 0.2 percent to a two-week high of $1.3996.
The Australian dollar added 0.1 percent to $0.7870 and in reach of a two-week peak of $0.7898 scaled the previous day on robust business indicators.
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