By Wayne Cole
SYDNEY, March 7 (Reuters) - The dollar extended its latestretreat in Asia on Wednesday after a key advocate for free tradein the White House announced his resignation, fanning fearsPresident Donald Trump would go ahead with tariffs and risk atrade war.
The dollar quickly dropped to 105.67 yen JPY= , from around106.10, after the White House said economic adviser Gary Cohnwas leaving. is a former Wall Street banker who became a bulwarkagainst protectionist forces within the Trump administration anddealers feared his leaving would embolden the tariff hawks.
"The worst outcome for financial markets, in terms ofpotential to create volatility, would be a confirmation ofrising trade friction and benign neglect of the dollar in theshort term," said analysts at ANZ.
Investors suspect protectionist forces in the White Housefavour using a lower dollar to enhance U.S. exportcompetitiveness while making imports more expensive.
The dollar index lost 0.67 percent against a group ofcurrencies .DXY to 89.480, the lowest in two weeks.
The euro popped up to $1.2421 EUR= , again the highest intwo weeks, having gained around a cent overnight.
Traders said there were whispers the European Central Bankmight drop its easing bias at a policy meeting this week, thoughPresident Mario Draghi has shown little public urgency to do sorecently.
The dollar had already been under pressure after South Koreasaid it would hold its first summit with the North in more thana decade, reducing geopolitical tensions.
It also said North Korea is willing to hold talks with theUnited States on denuclearization and will suspend nuclear testswhile those talks are underway.
President Trump said North Korea seemed "sincere" in itsapparent willingness to suspend nuclear tests while it held talks with U.S. officials. news boosted risk appetite and lifted currencies such asthe Australian and New Zealand dollar, although both were thenhindered by the revival of trade fears.