January 18, 2019 / 3:50 AM / 6 months ago

FOREX-Dollar edges up against yen on U.S.-China trade hopes

* Pound keeps most gains after rally overnight

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Daniel Leussink

TOKYO, Jan 18 (Reuters) - The dollar was firm against the yen on Friday as growing optimism of progress in Sino-U.S. trade talks supported broader appetite for risk.

A Wall Street Journal report on Thursday that U.S. Treasury Secretary Steven Mnuchin had considered easing tariff imposed on Chinese imports lifted sentiment though a Treasury spokesman later denied the report.

Kumiko Ishikawa, senior analyst at Sony Financial Holdings, said while Beijing and Washington continue to negotiate, “expectations are that things will go into a positive direction.”

Against the yen, the dollar tacked on 0.1 percent to 109.35 yen for its fourth-day of gains against the Japanese currency and just off a two-week high of 109.40 touched overnight.

The dollar index, which measures the greenback against six major peers, was largely flat at 96.056 after briefly rising to a near two-week high of 96.264 during the previous session.

The index, which has been hobbled since late last year by the Federal Reserve’s cautious stance on delivering further rate hikes, has managed to rebound about 1 percent from a three-month low of 95.029 touched just over a week ago.

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the latest round of trade talks aimed at resolving the trade standoff between the world’s two largest economies.

The dollar held firm against the euro, while the pound was steady after rising overnight on hopes of a second referendum on Britain’s membership in the European Union following Prime Minister Theresa May’s crushing defeat in parliament of her Brexit deal.

Over the next week, analysts said they expect focus will move to Thursday’s release of January business activity figures for the euro zone, including French data, that will offer some clues on the health of the economic bloc.

French business activity plunged unexpectedly into contraction last month, retreating at the fastest pace in over four years in the face of violent protests against the government of President Emmanuel Macron.

“Once the dust regarding Brexit and the anti-Macron demonstrations clears, then I think the market will focus again on the beginning of the rate-hike cycle by the ECB (European Central Bank) toward the end of this year,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“If that’ll be the focus, then I think there’ll be a big shift from the monetary-policy cycle of the U.S. to the euro area. That’ll cause a broader weakness of the dollar and strength of the euro.”

The single currency was up less than a tenth of a percent, last changing hands at $1.1397.

Sony’s Ishikawa said she expected the dollar to remain relatively strong versus the euro as long as worries over the health of the euro zone economy persist.

“The ECB is still said to raise interest rates in the second half of the year, but there is a possibility that will become difficult,” Ishikawa said.

The pound managed to hold onto most of its overnight gains against the euro as traders wagered on a second referendum vote on Britain’s EU membership.

While May has repeatedly rejected a second referendum, a vocal campaign in favour of holding a new vote has drawn the support of some lawmakers.

Sterling was last down about 0.1 percent at 87.82 pence, trading close to a two-month peak of 87.60 scaled overnight. It edged down to $1.2972 but was not far off a two-month high of $1.3001.

Editing by Shri Navaratnam

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