FOREX-Dollar falls on rising fears trade war will hit U.S. growth

(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Aug 12 (Reuters) - Increasing expectations that
the U.S.-China trade war will impact American economic growth
pushed the dollar lower on Monday.
In overnight trade the Japanese yen JPY= rose to its
highest level against the dollar since March 2018 - barring a
flash crash in January this year - as investors ramped up bets
that the safe-haven currency could gain more if the trade
conflict is prolonged. By mid-morning in North America, the
dollar was 0.33% lower against the yen to 105.30.
"The stronger yen was at or near 2019 highs against its U.S.
counterpart on prospects of a long drawn-out U.S.-China trade
war. The longer the trade war drags on, the more likely it would
weigh (on) the global outlook and crimp the world economy, a
negative for market morale," said Joe Manimbo, senior market
analyst at Western Union Business Solutions.
The dollar index .DXY was 0.10% lower to 97.389. Against
the euro it was 0.17% weaker to $1.1218.
Goldman Sachs analysts on Sunday said they no longer
expected Washington and Beijing to come to a trade agreement
before the 2020 presidential election. They lowered their
forecast for fourth-quarter U.S. growth and said the chances a
protracted trade war would lead to recession were rising.
Uncertainty about U.S. trade policy could lead state-side
companies to reduce their capital expenditures, hire fewer
workers and produce less.
"Using industry-level data, we find that greater exposure to
sales to China has been associated with slower capex growth as
the trade war has intensified. We estimate a total uncertainty
and sentiment drag on GDP of 0.1-0.2%," the Goldman Sachs
analysts wrote.
The yen is the top performer among its big rivals in global
foreign exchange markets, rising 3% this month as investors have
shown increased demand for Japanese government bonds after China
weakened the yuan below the seven-per-dollar level last week.
As a result, hedge funds that usually borrow in yen to
finance leveraged bets in other asset classes have been forced
into a rapid unwinding of short positions on the yen, sending
the Japanese currency higher.
Market attention will be on Chinese retail sales and
industrial output for July, due out on Wednesday, to gauge the
trade war's impact on domestic activity.
Investors will also be focused on the U.S. Federal Reserve's
annual symposium at Jackson Hole, Wyoming, later in the week,
seeking greater clarity on the future path of interest rates.
Markets are expecting two to three additional rate cuts from the
Fed by the end of the year. FEDWATCH