Dollar slips as China-U.S. trade worries ebb

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The dollar fell against a basket of peers on Friday, retreating from a 13-month high hit earlier this week, on lower demand for the safe-haven greenback and some profit-taking, as worries about trade tensions between Washington and Beijing eased.

The dollar index <.DXY>, which measures the greenback against a basket of six other currencies, was down 0.56 percent at 96.107, on pace for its worst daily decline in nearly a month.

"You had the dollar bought aggressively over the past few months when investors were risk-averse and were seeking safety in the greenback," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York.

"Investors are covering shorts into the last two weeks of summer and unwinding positions," she said.

Escalating tensions on trade between the United States and some of its largest trading partners had driven traders to sell emerging market currencies and take to the safety of the U.S. currency.

Next week's lower-level trade talks between China and the United States offer some hope of easing some of those tensions.

U.S. stocks extended gains on Friday and risk sentiment improved following a Wall Street Journal report on potential progress in easing trade tensions between the United States and China.

Ebbing concerns over the fallout from the Turkish lira's recent slide also helped strengthen the euro against the dollar.

"There was considerable risk aversion through the early part of the week with fears of Turkish contagion weighing on risk assets and that seems to have reversed somewhat here," said Karl Schamotta, a strategist at Cambridge Global Payments in Toronto.

On Friday, the Turkish lira snapped a three-day rebound, sliding more than 5 percent against the dollar on worries about the threat of more American economic sanctions unless Turkey hands over detained U.S. evangelical pastor Andrew Brunson.

The euro rebounded from a more than 13-month low touched earlier this week and was 0.59 percent higher at $1.1442.

The Japanese yen and the Swiss franc , which tend to rise in times of geopolitical and financial tensions, were modestly higher on the day.

The Canadian dollar strengthened against its U.S. counterpart after data showing a surge in domestic inflation triggered increased bets on another Bank of Canada interest rate hike as soon as September.

The greenback fell 0.53 percent against the Mexican peso , after Mexico's economy minister Ildefonso Guajardo said he hopes to conclude by the middle of next week outstanding bilateral issues with the United States surrounding the renegotiation of the North American Free Trade Agreement (NAFTA).

(Reporting by Saqib Iqbal Ahmed; Editing by Frances Kerry and Jonathan Oatis)

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