US Dollar Erases Earlier Gains as Geopolitical Tensions Increase

The US dollar surged against a number of its major peers on Wednesday before giving up most of its gains, as traders focused on rising geopolitical tensions between the United States and North Korea. The greenback had little support from mixed economic data in the United States today as a report showed that while nonfarm productivity rose in the second quarter of 2017, labor costs lagged behind.

In the latest development to the existing geopolitical tensions between the United States and North Korea, US President Donald Trump promised fire and fury for the Asian nation if it continued its threats. The promise, which was made by the president in a speech that he gave at his golf club in Bedminster, prompted North Korea to respond hours later with another threat. The Asian nation said that a missile strike against the massive Air Force base on Guam, a Pacific US island territory, is being considered.

The threat caused strong reactions within financial markets, as stocks and currencies in Europe and Asia took a downturn. However, the US dollar initially surged against most of its major peers, including the Japanese yen, which is often viewed as a safe haven currency, before losing its gains. Meanwhile, an index that tracks the performance of the greenback remained near its highest level in two weeks.

No apparent support for the US currency was present in today’s economic releases. The Bureau of Labor Statistics said in a report that was released earlier today that nonfarm productivity rose from 0.1% in the first quarter of the year to 0.9% in the second quarter. The rate beat analyst estimates of an increase to 0.7%. The same report added that unit labor costs increased 0.6% in the last quarter after rising 5.4% in the previous quarter, which disappointed expectations of a reading at 1.2%.

EUR/USD traded at 1.1743 as of 15:30 GMT on Wednesday after touching 1.1697 at 13:15 GMT, the pair’s weakest level since July 28. EUR/USD began the day at 1.1753. USD/JPY was at 109.85 from 110.09 at 14:35 GMT. USD/JPY started trading today at 110.10.

The Dollar Index, which measures the strength of the US currency against a basket of its main counterparts, declined to 93.59 today from 93.64 yesterday.

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