Dollar inches up as recession fears persist

By Kate Duguid

NEW YORK (Reuters) - The dollar rose on Wednesday, but the moves were small and range-bound as a deepening inversion of the U.S. yield curve stoked investor anxiety about a recession just days before U.S. and Chinese retaliatory tariffs on each other's imports are set to go into effect.

Two-year U.S. government bond yields rose further above 10-year yields to a spread as low as minus 6.5 basis points . The spread, which signals coming recession when it falls below zero, was last at minus 3.7 basis points. Investors are worried the U.S.-China trade war could tip the world into an economic slowdown.

The U.S. Trade Representative's office on Wednesday reaffirmed President Donald Trump's plans to impose an additional 5% tariff on a list of $300 billion of Chinese imports starting on Sept. 1 and Dec. 15.

The safe-haven yen stood at 106.07 per dollar , 0.32% weaker on the day, but nevertheless close to its 2-1/2-year high of 104.44 hit on Monday.

Much of the decline in dollar/yen since last week is due to investors becoming more risk-averse, said Adam Cole, currency strategist at RBC Capital Markets. The dollar bid on Wednesday, however, was unlikely to be the result of a risk-off move.

"We continue to believe that any reversal in recent risk-off price action is likely to be an occasion to get out of long positions in risky assets and to add exposure to defensive trades from more attractive levels. We therefore caution against entering pro-risk trades for the time being," wrote analysts at Credit Suisse.

The dollar index, which measures the U.S. currency against a basket of six currencies, rose 0.25% to 98.248 <.DXY>. The Chinese yuan edged lower to 7.169 in offshore markets, not far from the record low of 7.186 it touched on Monday.

Elsewhere, sterling slumped as much as 1% against the euro and the dollar on British Prime Minister Boris Johnson's move to limit parliament's opportunity to derail his Brexit plans.

The prime minister will formally open parliament on Oct. 14, effectively shutting Westminster for around a month in September, which reduces the time in which lawmakers could try to block a no-deal Brexit.

Sterling was last down 0.62% at $1.2211 and 0.55% lower versus the euro at 90.70 pence .

The euro was slightly weaker against the dollar , down 0.12% at $1.1077, little helped by the news that Italy's 5-Star Movement and the opposition Democratic Party would try to form a coalition, averting a snap election.

(Reporting by Kate Duguid in New York and Tommy Wilkes in London; Editing by Jonathan Oatis and Paul Simao)

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