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RPT-FOREX-Dollar recovers last week's lost ground, hits three-week peak

·2 min read

(Repeats without change to text)

By Alun John

HONG KONG, Aug 16 (Reuters) - The safe-haven U.S. dollar hit a three-week high on Tuesday after weak global economic data revived concerns of a global recession.

The dollar index, which measures the greenback against six major peers, rose 0.4% to 106.94, its highest since July 27.

It has recovered all of the losses recorded last week when cooler-than-expected U.S. inflation data sent investors out of the dollar and back towards assets associated with higher risk.

Risk appetite on Tuesday was hurt by a dip in German investor sentiment, a day after China's central bank on Monday unexpectedly cut a key interest rate to try to revive credit demand and support the COVID-hit economy after weak economic data releases for July.

"The U.S. growth picture is still intact, but the overall global picture remains fragile, given concerns about China, and that has put a dampener on risk sentiment," Sim Moh Siong, currency strategist at Bank of Singapore, said.

The euro fell 0.35% to $1.0123, sterling shed 0.26% to $1.202, and the Australian dollar was down 0.25% at $0.7 having earlier retreated below that symbolic level.

Australia's close trade ties with China mean its currency is sometimes treated by traders as a liquid proxy for China's yuan.

The dollar also climbed versus the Japanese yen up 0.8% to 13.47.

The Japanese currency, which is often affected by the difference between benchmark yields in the United States and Japan rallied sharply last week on the expectation that cooler inflation would mean a less aggressive pace of Fed tightening and so lower U.S. yields.

However in recent days, several Fed policymakers have spoken of the need for continued rate hikes.

"Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too high inflation," Kit Juckes, the head of FX strategy at Societe Generale, wrote in a research note.

"It's hard to build a compelling case to sell the dollar in that world."

In crypto currencies, bitcoin was a fraction lower at $24,000. Ether was up slightly at $1,900.

(Reporting by Kevin Buckland and Alun John; Editing by Shri Navaratnam, Simon Cameron-Moore, Jan Harvey and Barbara Lewis)