The US dollar erased earlier losses and rose on Friday after investors cut back short positions in the greenback as concerns about slower global growth prospects and political tensions boosted its safe-haven appeal.
The dollar weakened after the Federal Reserve cut interest rates by a quarter-point on Wednesday and the currency's decline was compounded by a spike in overnight US repo rates that cut into demand for dollars.
But market watchers say the slowdown in global growth a nd increased tensions following the weekend attacks on Saudi oil facilities were making the dollar more attractive, despite a dovish policy stance from policymakers.
"As long as the outlook for global growth remains uncertain and geopolitical tensions don't ease, we expect the current trends in the FX market will continue," said Richard Falkenhall, a senior FX strategist at SEB. "Our forecasts point to further USD strength, while smaller currencies remain weak this year."
The dollar rebounded 0.1 per cent against an index of other currencies to 98.39, ending a two-week losing streak. It had fallen 0.1 per cent in early London trading.
Markets focused on US-China trade talks in Washington, taking place ahead of high-level discussions next month. Some signs of progress were emerging.
Sterling was briefly the biggest gainer against the dollar before profit taking ahead of the weekend pulled the British pound lower.
European Commission President Jean-Claude Juncker said on Thursday he thought Brussels could reach agreement with Britain on its departure from the European Union.
In early trading, the pound rose 0.5 per cent to a two-month high against the dollar and to a four-month high against the euro of 87.87 pence, but then gave up its gains to trade broadl ..