By William Watts, MarketWatch , Anneken Tappe

The U.S. dollar on Tuesday traded in a tight range, struggling for direction in the wake of an intensification of the U.S.-China trade fight after the Trump administration followed through on its plan to impose tariffs on an additional $200 billion in Chinese goods, prompting Beijing to vow retaliation.

The ICE U.S. Dollar Index , which tracks the currency against a basket of six major rivals, was last little changed in negative territory at 94.457. The dollar index steadied the tone remains soft, nursing a 0.5% weekly loss and a 0.7% decline so far in September, according to FactSet.

"Market reaction was muted as the tariffs had been widely telegraphed," said Elsa Lignos, global head of FX strategy at RBC Capital Markets, in a note. "We have now reached a level of affected imports where it will necessarily start to impact consumer prices" in the U.S.

Read:5 things about a U.S.-China trade war that might surprise investors (http://www.marketwatch.com/story/5-things-about-a-us-china-trade-war-that-might-surprise-investors-2018-09-11)

Trump on Monday said the U.S. would impose a 10% tariff (http://www.marketwatch.com/story/trump-to-impose-another-200-billion-in-tariffs-on-chinese-goods-2018-09-17) on about $200 billion in Chinese goods and threatened to add hundreds of billions more. The 10% tax takes effect on Sept. 24 and will rise to 25% at the end of the year, administration officials said. Beijing responded by announcing retaliatory tariffs (https://www.wsj.com/articles/chinese-officials-scramble-to-respond-to-trumps-new-tariffs-1537275015?mod=hp_lead_pos1) on $60 billion of American goods.

Lignos said reaction might have also been limited due to hopes that the delay of the 25% tariff rate until January means more time for negotiation and reconciliation once U.S. midterm elections are out of the way -- a scenario she termed "unlikely."

Check out:India tries to stem rupee selloff in another round of emerging-markets turmoil (http://www.marketwatch.com/story/india-tries-to-stem-rupee-selloff-in-another-round-of-emerging-markets-turmoil-2018-09-17)

The timing of the dollar's pullback "has coincided with the rise in concern about how much Trump's tariffs on China's goods could slow productivity and growth in the U.S.," said Jane Foley, senior FX strategist at Rabobank, in a note.

But the biggest impact from the tariffs is likely to be felt in China, she said, which will keep investors nervous and continue to underpin the dollar in the medium term.

The People's Bank of China guided the yuan to a slightly softer fix versus the dollar overnight as traders attempt to discern how far Beijing will go in easing domestic policies to counter the strain over slowing growth, Foley said. The buck last bought 6.8621 yuan in Beijing trading, up 0.1%.

In the offshore market, the dollar fetched 6.8684 yuan , little changed versus late Monday in New York.

In other major currency pairs, the euro benefited from the sluggish greenback, trading at $1.1697, up from $1.1685, while the U.S. currency edged up 0.4% versus the Japanese currency to fetch 112.36 yen, its highest since mid-July.

 

(END) Dow Jones Newswires

September 18, 2018 11:30 ET (15:30 GMT)

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