By Olga Cotaga and Stanley White
LONDON, Aug 16 (Reuters) - The euro fell to a two-week low on Friday against the dollar, which extended the gains it made the day before after U.S. retail sales data came out better than expected .
The dollar was on course to end the week up against the euro, the Japanese yen and the Swiss franc as investors returned to riskier assets. A stable offshore Chinese yuan helped improve risk appetite.
Measured against a basket of six major currencies , the dollar was higher in the early London trading at 98.210. It has recovered by about 1% from its three-week low on Aug. 9.
Data showing U.S. consumers kept spending in July came as a relief after the U.S. Treasury yield curve inverted this week, which historically has preceded U.S. recessions .
The inversion stoked worries about the impact of the Sino-U.S. trade war. The curve steepened a little on Friday .
China on Thursday said it would retaliate for the latest U.S. tariffs on $300 billion of Chinese goods, but U.S. President Donald Trump said any pact would have to be on America's terms, suggesting a resolution to the trade war remains elusive .
China's offshore yuan, whose plunge past 7 to the dollar last week sent shivers through financial markets, was weaker on Friday at 7.0530 . The People's Bank of China fixed the onshore yuan currency at 7.0312 on Friday, compared with market expectations at 7.0307, according to analysts at Commerzbank.
"While it was roughly in line with expectations, it might be worth noting that since yesterday, the actual dollar/onshore yuan fixing rates have been slightly higher than the estimates," the analysts said.
The fragile calm is unlikely to last, traders said.
"The most important point is there are more signs of a global economic slowdown," said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.
"Rates will continue to fall, and investors will pull back from risk, which means money will leave emerging markets and go to Treasuries, the Swiss franc, gold, and the yen."
Sterling was up 0.3% at $1.2118, close to a one-week high of $1.2150 and on course for its first weekly gain since mid-July. Encouraging data on British retail sales and consumer prices suggested the British economy was in better shape than some investors had feared.
Against the euro, the pound reached an 11-day high of 91.50 pence .
However, the risk remains that Prime Minister Boris Johnson will take Britain out of the European Union without a transition agreement, causing short-term economic turmoil.
"I think sterling is likely to be more of a two-way market now as those opposed to Brexit rage, rage against the dying of the light. At the same time, we can't expect the Brexit supporters, who have gotten this far, to just cry how bright their frail deeds might have danced in a green bay," said Marshall Gittler, chief strategist at ACLS Global.