By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar rose against most major currencies on Thursday in thin summer trading, as investors bet global trade tensions and a robust American economy would continue to support the U.S. currency.
The greenback has the upper hand over emerging market currencies in a trade war scenario, analysts said, and tariffs may actually narrow the U.S. trade deficit.
Sterling on Thursday continued to slide, hitting $1.2879 following a drop to $1.2854 on Wednesday.
The pound is weakening as investors ramp up bets that Britain will leave the European Union without an agreement with Brussels on their future relationship.
In the United States, better-than-expected data on initial jobless claims and generally rising producer prices helped the dollar hold its gains.
"Higher consumer prices, which are on the cards, would be supportive of both the dollar and the Federal Reserve, raising rates further this year," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar's gains, however, have been more pronounced against emerging market currencies because an escalation in the U.S.-China trade war would hit their export-oriented economies harder.
The dollar index (.DXY) was up 0.4 percent at 95.454. It rose to a year-high of 95.652 on July 19 but has since struggled to break much above the 95.5 level.
Thursday's big mover was the New Zealand dollar, which fell nearly 2 percent to US$0.6613
The tumble was in response to the Reserve Bank of New Zealand unexpectedly committing on Thursday to keep interest rates at record lows through to 2020 on disappointing economic activity.
Reflecting concerns among investors about geopolitical tensions, including the U.S.-China trade war and Brexit, the yen rose before trading flat against the dollar.
Currency markets this summer have been dominated by political angst from U.S. sanctions on Russia and Turkey to rising tensions in the Middle East and Europe.
The Russian ruble
The Turkish lira touched a record low against the dollar, weakening some 2.5 percent from Wednesday's close, after a Turkish delegation met U.S. officials to try to resolve disputes between the two NATO allies.
"Turkey's financial situation is the direst it has been in years," said Cristian Maggio, head of emerging markets strategy at TD Securities in London, with the Turkish lira having plunged 10 percent against the dollar since the end of July.
"The second-worst performing currency is the ruble, which also suffers, like Turkey, from negative political factors. Unlike Turkey, however, the ruble remains supported by a strengthening and better-balanced economy, and by credible and well-implemented monetary policy."
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alistair Bell and Paul Simao)