August 27, 2018 / 8:13 AM / in 8 months

FOREX-Dollar steady after Powell speech, NAFTA hopes lift Mexican peso

* Dollar steady, risk appetite up after Powell speech

* Mexican peso rises as NAFTA talks seen nearing agreement

* Euro rises to near one-month high

* Graphic: World FX rates in 2018

By Tom Finn

LONDON, Aug 27 (Reuters) - The dollar steadied against its peers on Monday as risk sentiment improved following Federal Reserve comments and signs U.S. and Mexican negotiators were homing in on a common position on the North American Free Trade Agreement (NAFTA).

At a symposium at Jackson Hole, Wyoming, Jerome Powell on Friday emphasised the central bank’s push to raise interest rates despite President Donald Trump’s criticism of higher borrowing costs.

The Treasury yield curve reached its flattest level since 2007 on Friday - a factor seen as reducing support for the dollar - in the wake of Powell’s speech.

His comments did little to change market expectations for rate hikes in September and December and disappointed some dollar bulls hoping for a more hawkish message.

“There were clearly those in the market who were wrongfooted and had thought the Fed might shift towards an auto-pilot mode (approach to rate hikes) as it did in 2004. Obviously, Powell prefers a gradual approach,” said Ulrich Leuchtmann, head of FX and emerging market research at Commerzbank AG in Frankfurt.

“The return of risk appetite is negative for the dollar and its safe-haven appeal,” he added.

The dollar index against a basket of six major currencies at GMT 0800 was broadly flat at 95.225, after slipping more than 0.5 percent in the previous session.

“Powell’s speech was nothing out of the ordinary,” said Mitsuo Imaizumi, chief forex strategist at Daiwa Securities.

“He stuck with the current policy trajectory and this means that the flattening of the U.S. yield curve would be allowed to continue.”

Adding to the positive mood, U.S. and Mexican trade negotiators appeared close to reaching a common position on the North American Free Trade Agreement (NAFTA), with Mexico’s economy minister saying on Sunday that talks have “continued to make progress”.

The Mexican peso was up 0.6 percent at 18.81 per dollar. Talks are scheduled to resume later on Monday.

A prospective trade deal with Mexico “takes a little bit of global trade war risk off the table”, said Robert Carnell, chief economist and head of research, Asia-Pacific at ING.

The euro was little changed at $1.1609 after going as high as $1.1654, its strongest since Aug. 2. The single currency had advanced more than 0.7 percent on Friday.

The Chinese yuan extended is rally in the onshore market to as high as 6.8061 per dollar, its strongest since Aug. 8.

The yuan had surged about 0.8 percent in onshore trade on Friday after the People’s Bank of China said it was adjusting its methodology for fixing the yuan’s daily midpoint, amid broad dollar strength and ongoing trade tensions between Washington and Beijing.

Other emerging currencies including the Turkish lira and the South African rand were mostly steady against the dollar.

A broad retreat in emerging market currencies, notably the Turkish lira, earlier this month had been a key source of strength for the greenback. (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Alison Williams)

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