January 9, 2020 / 12:17 PM / 19 days ago

FOREX-Safe-haven currencies give back gains as U.S.-Iran situation eases

* Japanese yen falls to week-and-a-half low

* Dollar, Swiss franc down as well

* Chinese yuan rises to five-month high vs dollar

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Adds volatility, Hong Kong dollar and updates prices)

By Olga Cotaga

LONDON, Jan 9 (Reuters) - Safe-haven currencies such as the Japanese yen retreated on Thursday as the United States and Iran backed away from further conflict, with markets resuming a more risk-taking approach on hopes of a U.S.-China trade deal.

U.S. President Donald Trump responded to an Iranian attack on U.S. forces with sanctions, not violence. Iran offered no immediate signal it would retaliate further to a Jan. 3 U.S. drone strike that killed its senior military commander.

The yen, seen as a safe haven in times of geopolitical turmoil because of its deep liquidity and Japan’s current account surplus, reversed the gains it made after Iran’s missile strike. It was last down 0.3% at 109.49, a two-week low .

“Markets are brushing aside fears of a major escalation in U.S./Iranian conflict,” said Societe Generale’s strategist Kit Juckes. “The Japanese yen is the biggest FX loser.”

Gold prices also slid, retreating further from a near-seven-year peak scaled in the previous session.

The dollar, also seen as a safe choice to park money in times of turmoil, fell against other major currencies. It was trading at $1.1110 against the euro.

Implied volatility gauges for euro/dollar are falling back towards late 2019 lows, which is “very telling”, according to Reuters analysts.

Three-month implied volatility in euro/dollar fell to 4.27% at the end of November, its lowest level on record.

Focus is expected to shift back to the global economy, with expectations that the United States and China will sign a trade deal next week providing underlying support for risk assets.

Investors think the deal will clear one of the world economy’s biggest uncertainties and help boost global growth this year, although some think that view is too optimistic.

China’s yuan rose to a five-month high of 6.9175 against the dollar overnight in the offshore market, boosted also by a steady inflation readout.

Moreover, Chinese factory-gate prices fell at a slower pace in December, giving Beijing room to stay on course on monetary easing as economic growth cools. Some investors have worried that consumer inflation, hovering near eight-year highs, could make China’s central bank more cautious about further stimulus.

“A trade deal, falling inflation ... combined with past and current PBOC easing should over the next few months help the Chinese economy,” said Sebastien Galy, a Nordea strategist.

Elsewhere, the Hong Kong dollar strengthened further, rising to 7.7669 against the U.S. dollar, its highest since March 2017 .

Traders will be watching U.S. jobless claims, which economists polled by Reuters expect inched down to 220,000 in the week to Jan. 4 from 222,000. The claims should give an indication of how healthy the U.S. job market is before non-farm payrolls data due out on Friday.

Reporting by Olga Cotaga; editing by Hugh Lawson, Larry King

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