May 8, 2019 / 7:23 AM / 11 days ago

FOREX-Yen firms at 6-week high before China-U.S. trade talks

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

By Saikat Chatterjee

LONDON, May 8 (Reuters) - The Japanese yen rallied to a six-week high against the dollar on Wednesday as growing concerns about the trade dispute between China and the United States prompted investors to take shelter in perceived safe-haven assets.

Data out earlier showed China’s trade surplus with the United States, a major irritant for Washington, expanded to $21.01 billion in April from a month ago, a factor that might provoke a hardening stance from U.S. officials.

“The threat of further escalation in the tariff war becomes real again and at the moment, it is just impossible to assign any probability to any scenario, positive or negative,” Societe Generale strategists said in a daily note.

Focus is on trade talks on Thursday and Friday in Washington, where Chinese Vice Premier Liu will try to salvage a deal that would avoid a sharp increase in tariffs on Chinese goods scheduled to take effect on Friday.

The prospects of an escalation rather than a resolution of the spat between the U.S. and China has seen the yen gain in recent days, with the currency up 0.2 percent against the dollar at 110.07 yen, taking its gains to more than 1 percent so far this month.

The New Zealand dollar was the other notable loser overnight after the central bank cut benchmark cash rates to 1.5 percent from 1.75 percent.

The kiwi was last off 0.1 percent, recovering somewhat after falling to $0.6525 in the immediate aftermath of the rate cut, its lowest since last November.

Elsewhere, the euro was up 0.1 percent at $1.1213, but holding within recent ranges as currency traders were still undecided on the inflationary outlook for the euro zone economy and the latest developments on the trade war front.

“The European Central Bank is likely to keep a close eye on the renewed escalation of the trade war as the real economic consequences could be considerable, affecting its monetary policy,” Commerzbank strategists said.

The pound fell for a third day, edging down 0.2 percent to $1.3052. (Reporting by Saikat Chatterjee; Additional reporting by Daniel Leussink in TOKYO; Editing by Kirsten Donovan)

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