October 8, 2019 / 10:24 AM / 8 days ago

FOREX-Dollar weakens as hopes for U.S.-China trade deal fade

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Oct 8 (Reuters) - The dollar fell on Tuesday, with the New Zealand dollar leading gains against the U.S. currency, as a rally in Asian equities spilled over into currency markets.

Despite doubts a trade deal will be reached when trade talks between Beijing and Washington resume this week, market watchers attributed the moves to positioning after a bout of volatility last week.

“We had a lot of market volatility last week, and the current move in the high-beta currencies is due to some unwinding of extreme long positions in the dollar,” said Morten Lund, a senior FX strategist at Nordea.

The latest futures data showed hedge funds have added to their massive long dollar positions.

Against a basket of other currencies, the dollar dipped 0.1% to 98.85 after posting its biggest single-day rise in a week in the previous session.

Markets will be looking for comments from U.S. Federal Reserve Chairman Jerome Powell later in the day after some weak U.S. data last week raised concerns the U.S. economy may be heading towards a protracted slowdown.

The euro got a boost from German industrial output, data which unexpectedly rose in August.

The single currency gained 0.2% to $1.0989 but remained within sight of last week’s $1.08790, its lowest in more than two years.

The Chinese yuan rose in onshore and offshore trade as Chinese financial markets re-opened after a week-long holiday.

The Australian and New Zealand dollars, which are linked to global trade, edged higher as some investors reduced bearish bets. Dealers warned the move could fade depending on the trade talks in Washington.

Deputy-level meetings between U.S. and Chinese trade negotiators began in Washington on Monday, with little immediate signs of progress.

Elsewhere, sterling dived to a one-month low against the euro on Tuesday on reports that Brexit talks are close to breakdown.

Reporting by Saikat Chatterjee, editing by Larry King

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