Dollar struggles before Fed minutes; yuan hits 3-week high

LONDON: China's yuan rose on Wednesday after the United States pressed Beijing to prevent a sharp weakening of its currency as part of any trade deal, while the dollar paused as traders positioned ahead of the release of Federal Reserve policy minutes.

The yuan has been a strong performer in 2019, helped by the recovery in emerging market assets broadly and optimism that Washington and Beijing are close to agreeing a deal to end their trade conflict.

In offshore markets, the yuan rose 0.4 percent to as much as 6.7168, its strongest since Feb. 1.

The dollar, measured against a basket of currencies, held steady at 96.494, away from two-month highs hit last week.

Demand for the liquid greenback has ebbed on optimism that a fresh round of talks between China and the United States would help resolve their trade conflict.

The euro nudged higher to $1.1350 but was stuck within recent ranges - the common currency has struggled this month as worries about the state of the euro zone economy grow.

ABN AMRO analyst Georgette Boele said the bank had downgraded its euro forecasts for 2019 because of economic concerns.

"However, we also expect limited downside in the euro, because weaker-than-expected euro zone data have had only a limited negative impact on the euro, suggesting that most of the weakness is reflected in the price," she said.

The benchmark 10-year U.S. Treasury yield fell sharply to an 11-day low on Tuesday ahead of the Fed meeting minutes, which are due later on Wednesday, further dampening demand for the dollar.

The minutes from the January Fed meeting will be closely watched following a dovish statement at that review.

Analysts say weaker than expected U.S. retail sales and industrial production numbers published this month have, according to MUFG, "challenged the view that the U.S. economy will continue to hold up relatively well while overseas economies are displaying more acute weakness."

The yen fell another 0.3 percent against the dollar to 110.95 after disappointing trade numbers showed that Japanese exports fell the most in two years in January.

The yen had taken a hit on Tuesday after Bank of Japan Governor Haruhiko Kuroda said the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy.

Sterling slipped back 0.3 percent but held above $1.30  following Tuesday's surge on hopes Prime Minister Theresa May can make progress in Brussels on Wednesday as she tries to tweak her Brexit withdrawal agreement.