August 22, 2018 / 5:03 AM / 3 months ago

FOREX-Dollar remains on defensive, U.S.-China trade talks awaited

* Dollar sags, Trump’s comments on Fed hikes continue to weigh

* Planned U.S.-China trade talks awaited for cues

* Minutes from latest Fed meeting also in focus

* Pound stands tall amid optimism towards Brexit talks (Updates prices, adds political events)

By Shinichi Saoshiro

TOKYO, Aug 22 (Reuters) - The dollar remained on the defensive on Wednesday, as U.S. President Donald Trump’s comments on monetary policy continued to weigh on the greenback and as markets awaited U.S.-China trade talks and Federal Reserve minutes for directional cues.

Noticeable gainers against the dollar included the euro , which rose roughly 0.8 percent overnight, brushing a 12-day peak of $1.1601. In Asian trade, it was steady at $1.1572 from its New York close.

The dollar index against a basket of six major currencies was nearly flat at 95.255 after losing 0.7 percent the previous day. It fell to 95.070 on Tuesday, its lowest since Aug. 9.

Trump told Reuters in an interview on Monday that he was “not thrilled” at the Fed’s rate hikes, sparking the dollar’s latest downturn.

Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, said the euro “was already regrouping from its recent rout and Trump’s comments gave extra incentive for short positions to be covered in the market.”

A week ago, the euro had stooped to a 13-1/2 month low of $1.1301, hit by concerns that Turkey’s financial turmoil -exemplified by the lira’s plunge to a record low - could hurt European banks.

The single currency then rebounded as the United States and China agreed to hold low-level trade talks, calming market nerves and reducing demand for the safe-haven dollar. A pullback by Turkey’s lira from all-time lows has also brought relief.

The U.S.-China trade talks are expected to begin later on Wednesday in Washington.

“Market expectations may have exceeded the likely outcome from the trade talks, especially equities, which have gained significantly,” Ishikawa at IG Securities said. “The talks could end with little fanfare as they will not be conducted at a high level.”

The benchmark S&P 500 touched a record high on Tuesday and equalled its longest-ever bull-market run, buoyed by strong earnings reports in the consumer sector and relative calm in the U.S.-China trade dispute.

In focus was how the euro would react to the U.S.-China trade talks.

“The euro has recovered above the $1.15 threshold, and it could serve as a gauge of global risk sentiment going forward,” said Makoto Noji, chief currency strategist at SMBC Nikko Securities.

The market was also awaiting minutes of the Fed’s July 31-Aug. 1 policy meeting, due at 1800 GMT. Investors will study them to see whether policymakers discussed issues such as trade policy and the shape of the U.S. yield curve, which has come close to inverting.

Overall currency market reaction to latest U.S. political news was limited. Trump’s former personal lawyer Michael Cohen testified on Tuesday, saying he had been directed to commit a crime ahead of the 2016 presidential election.

Separately, former Trump campaign chairman Paul Manafort was convicted on Tuesday of financial wrongdoing.

The pound was steady at $1.2909 and in close reach of the two-week high of $1.2924 scaled the previous day.

Sterling surged 0.8 percent on Tuesday after Britain’s chief Brexit negotiator, Dominic Raab, said the country is still confident it can reach an exit deal with the European Union in October.

The Australian dollar dipped 0.2 percent to $0.7353 after advancing 0.4 percent overnight on the back of the dollar’s broad weakness.

The dollar edged up 0.1 percent to 110.45 yen. It had weakened to 109.775 overnight, its lowest since late June.

The New Zealand dollar climbed to a two-week peak of $0.6772 after strong domestic second quarter retail sales data suggested the gross domestic product would overshoot the central bank’s forecast. The kiwi last traded at $0.6703.

Onshore Chinese yuan was a touch stronger at 6.844 per dollar and headed for its fifth straight session of gains. (Editing by Sam Holmes and Richard Borsuk)

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