August 23, 2017 / 2:17 PM / a year ago

FOREX-Dollar sags as Trump comments on shutdown, NAFTA weigh

* Trump says may shut down govt if U.S.-Mexico wall not built

* Investors await Yellen and Draghi speeches in Jackson Hole

* Strong European PMIs lift euro (Adds comment, updates prices, recasts, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 23 (Reuters) - The dollar fell on Wednesday in a generally risk-averse market after U.S. President Donald Trump’s threat of a government shutdown and comments about the possible termination of a North American trade agreement.

Trump warned late on Tuesday he might terminate the NAFTA trade treaty with Mexico and Canada after three-way talks failed to bridge deep differences. He also said he may shut down the government if he does not get funding for a wall on the U.S.-Mexico border.

This was not the first time Trump has threatened to scrap NAFTA, but it was the first time that he did so after negotiations started, analysts said.

“No one can be sure whether the comments are a way for Trump to influence the negotiations, or whether he thinks that the negotiations are just a formality and he means to scrap NAFTA completely,” said Thierry Albert Wizman, global interest rates and currency strategist at Macquarie Group in New York.

In any case, Wizman said Trump’s remarks pushed the safe-haven yen higher amid a “general risk-off tone.”

In mid-morning trading, the dollar fell 0.4 percent to 109.17 yen, with the dollar index slipping 0.3 percent to 93.272.

The euro was propped up by strong German and French PMI survey readings, although analysts warned the single currency’s gains could be short-lived due to concerns about heavy one-sided bets.

The euro rose 0.4 percent to $1.1804 and hit a fresh 10-1/2-month peak against the British pound, near 92 pence.

PMI data from Germany and France showed both countries registering strong private-sector growth in August, separate surveys showed. That boosted confidence that the euro zone’s biggest economies are likely to maintain their momentum in the September quarter.

Investors awaited speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the Jackson Hole summit on Friday, though neither was expected to announce new policy messages. In a speech in Germany on Wednesday, Draghi steered clear of market-sensitive comments.

FXTM research analyst Lukman Otunuga said the threat of Draghi verbally intervening to weaken the currency at Jackson Hole was likely to limit the euro’s upside.

“With July’s ECB meeting minutes already revealing concerns over how a resurgent euro is obstructing the central bank’s efforts to hit the 2 percent inflation target, Draghi’s speech on Friday will be in sharp focus,” he added. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London; Editing by Meredith Mazzilli)

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