The euro fell to a nine-day low on Friday and the Chinese yuan slid again after data showing a record Chinese trade surplus stirred worries about the US-China trade row, encouraging investors to buy into the safety of the dollar. The yen - also traditionally bought in an uncertain market - fell to a new six-month low, however, suggesting investors were relatively unconcerned about the latest episode in the trade dispute, and European stock markets rose before expected bumper corporate earnings.
Also supporting the dollar's rally was US inflation data on Thursday that raised expectations of more interest rate rises to address faster rising prices. US Treasury Secretary Steven Mnuchin said on Thursday that the United States and China might reopen trade talks, briefly easing concerns about the trade dispute.
But data showing China's trade surplus with the US swelled to a record in June could further inflame tensions. US President Donald Trump this week pledged to impose tariffs on $200 billion more of Chinese imports. Beijing has vowed to retaliate.
"The trade conflict is dominating concerns in the market," Commerzbank analyst Esther Reichelt said. "These are sentiment-driven moves." The single currency dropped to as low as $1.1613, down 0.4 percent. The dollar index reached a two-week high at 95.241. The Chinese yuan, which has suffered since April on concern that US tariffs on Chinese goods will hurt its economy, reversed gains made in Asian trading and fell half a percent in offshore markets to as low as 6.7252, near an 11-month trough of 6.7333.
The yen fell to 112.775 yen. The dollar has advanced roughly 2 percent versus the yen this week, the biggest weekly gain since mid-September. The steady buildup of inflation pressure, while largely expected by markets, will reinforce the view of a "widening in monetary policy divergence" between a the US Federal Reserve raising rates and other central banks, Rabobank FX strategist Piotr Matys said.
"The latest set of inflation data confirms that the Fed will stay well ahead of other central banks," he said. "We believe the dollar has the potential to extend its rally." European Central Bank minutes published on Thursday also weighed on the euro, showing that members remain a long way from normalising policy.
Trump's comments on Britain's Brexit plan killing hopes of a US trade deal knocked sterling lower, pushing the dollar further ahead. Sterling slid more than half a percent to as weak as $1.3103. The Swiss franc slid to a 14-month low against a rallying dollar, down 0.3 percent on the day at 1.0068 francs per dollar. Against the euro the franc was flat. The Australian dollar, seen as a proxy for China risk given Australia's reliance on Chinese demand for its big mining exports, tumbled half a percent to $0.7369. The currency has sunk more than 1 percent since Monday.
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