Dollar near seven-week low as safe haven bids ebb pound slips on EU summit

The dollar hovered near a seven-week low against a basket of major currencies on Thursday, as safe-haven demand for the U.S. currency ebbed on relief that the Sino-U.S. trade war may not be as damaging as once feared.

The British pound stepped back from two-month highs on caution over whether the European Union and U.K. can reach a Brexit deal at their current summit while the New Zealand dollar jumped to three-week highs after strong domestic GDP data.

The dollar index dipped 0.1 percent to 94.467, near its seven-week low of 94.308 touched on Tuesday, as its more risk-sensitive rivals held firmer.

The euro traded at $1.1683, up 0.1 percent and not far from peaks in August and September around $1.1730.

The Australian dollar, seen as a proxy for China-related trades as well as a barometer of broader risk sentiment, held at three-week highs, having gained 1.5 percent so far this week. It stood at $0.7257 after having risen to $0.7276 on Wednesday.

The Aussie was also helped by comments from Chinese Premier Li Keqiang on Wednesday that Beijing will not stoop to competitive devaluation of its currency.

His comments came after China imposed new retaliatory levies on about $60 billion worth of U.S. goods at scaled-back rates. Washington's new duties were set at 10 percent for now, before it is set to rise to 25 percent by the end of 2018, rather than an outright 25 percent.

"That the U.S. chose a lower rate seems to suggest it is making some allowances for China. Chinese Premier Li's comments on the yuan could be also seen as a overture to Washington," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

"All in all, markets are hoping that the two sides will continue to talk and another round of tariffs could be avoided."

Traders also noted that U.S. macro economic data has remained very strong so far despite trade disputes since early this year.

"Real money investors are now buying back undervalued assets, those that were sold aggressively, including the antipodean currencies, as they can't find any evidence of economic slowdown from trade wars," said a senior trader at a U.S. bank.

The British pound had hit two-month highs on Wednesday after UK inflation data overshot market expectations, but it retreated after the Times reported that Prime Minister Theresa May had rejected an improved offer from the EU to solve the Irish border issue.

After a European Union leaders' dinner on the first evening of the two-day meeting, leaders of Lithuania and Slovakia said

there has been no progress on Brexit and the Irish border.

The British pound last fetched $1.3149, off its two-month high of $1.3215 in the previous session.

The New Zealand dollar jumped after data showed its economy grew at the fastest pace in two years in the second quarter.

The kiwi rose as much as 0.6 percent to a three-week high of $0.6653 and last stood at $0.6646.

The Canadian dollar was firm ahead of further talks to revamp the North American Free Trade Agreement.

It last stood at C$1.2915 to the U.S. dollar, having gained 0.8 percent so far this week and coming within reach of its near-three-month high of 1.2887 touched late last month.

The yen changed hands at 112.14 to the dollar, staying close to a two-month low of 112.445 touched on Wednesday.

The yen has pulled back slightly this week as investors reassessed the impact of the Sino-U.S. trade war.

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