LONDON: The dollar edged higher on Monday, extending a two-week winning streak, as rising stock markets signalled a return in risk appetite, though investors remained wary about trade tensions between the United States and China.
A media report that China was evaluating the potential impact of a gradual yuan depreciation as a tool in the escalating trade dispute also pushed up the greenback.
"We are waiting to see more clarity on the trade war issue and any escalation in that would fuel a global sell-off, but for now markets are in that sweet spot in which they have been trading for most of the time in recent weeks," said Thu Lan Nguyen, an analyst at Commerzbank.
The dollar rose 0.1 percent against a basket of currencies . Against the Japanese yen it rose about 0.2 percent.
Concerns of an escalating trade conflict have prompted investors to trim their record bearish bets against the greenback, with latest positioning data showing that net short bets against the dollar have fallen for the second week.
UBS strategists say a trade war would hurt Asian exports and prompt outflows from export-oriented equity markets such as Singapore, Malaysia and Taiwan.
Chinese state researchers and media have talked down the likely impact of US trade measures on the world's second largest economy and described the Trump administration's posturing on trade as the product of an "anxiety disorder".
The dollar index set a one-month high of 90.597 ahead of the US nonfarm payrolls report data on Friday but later lost some steam, weighed down by concerns about the US-China trade dispute and the disappointing US jobs data.
Risk aversion appears less intense than it did a few weeks ago, partly due to hopes for negotiations between the United States and China toward a pragmatic solution, said Shinichiro Kadota, senior strategist for Barclays in Tokyo.
On Monday, Asian stocks were a sea of green with Chinese stocks outperforming their regional peers, while US stock index futures were 0.7 percent up in early trade.
"We're no longer in a phase where the dollar keeps falling persistently against the yen," Kadota said.
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