August 17, 2018 / 3:22 PM / a month ago

FOREX-Dollar retreats as prospect of China-U.S. trade talks soothe nerves

* China, U.S. to hold lower-level trade talks in late August

* Lira resumes weakening on U.S. sanctions threats (New throughout, updates rates, comments to U.S. market open; changes dateline; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, Aug 17 (Reuters) - The dollar fell against a basket of peers on Friday, amid lower demand for the safe-haven greenback, as traders hoped next week’s trade talks between the United States and China would ease tensions between the two countries.

Easing worries over the fallout from the Turkish lira’s recent slide also helped strengthen the euro against the dollar.

The dollar index, which measures the greenback against a basket of six other currencies, was down 0.33 percent at 96.327, on pace for its third straight day of declines. The index remains just shy of the more than 13-month high of 96.984 hit on Wednesday.

“There was considerable risk aversion through the early part of the week with fears of Turkish contagion weighing on risk assets and that seems to have reversed somewhat here,” said Karl Schamotta, a strategist at Cambridge Global Payments in Toronto.

A plunge by the Turkish lira and concerns over China’s economic health hit emerging market currencies this week, boosting the dollar.

On Friday, the Turkish lira snapped a three-day rebound, sliding more than 5 percent against the dollar on worries about the threat of more U.S. economic sanctions unless Turkey hands over detained American evangelical pastor Andrew Brunson.

Next week’s lower-level trade talks between China and the United States offer some hope that the two countries will find a way to head off a full-blown trade war.

“Although the chances of a breakthrough deal from lower-level talks are seen as unlikely, the meeting could be a positive step towards easing trade tensions between the world’s two largest economies,” Lukman Otunuga, research analyst at futures brokerage FXTM in London, said in a note.

The euro rebounded from a more than 13-month low touched earlier this week and was 0.22 percent higher at $1.14.

The common currency came under pressure in recent days as investors fretted about euro zone bank exposure to Turkey.

The Japanese yen and the Swiss Franc, which tend to rise in times of geopolitical and financial tensions, were higher on the day.

“There has been a flight to safety through the week that lifted both these currencies up and is keeping both of them stable,” said Schamotta.

The Canadian dollar gained against its U.S. counterpart after the country’s annual inflation rate accelerated by more than expected, increasing prospects that the Bank of Canada might raise interest rates next month.

Reporting by Saqib Iqbal Ahmed Editing by Frances Kerry

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