LONDON: Australia's dollar and the Chinese yuan gained on Wednesday on hopes for an agreement between Beijing and Washington to end their trade conflict, while the euro rebounded as a rally in risk assets dented demand for dollars.
Reports of progress in trade talks between the United States and China, as well as reassuring factory activity data from both countries, has supported markets in recent days and sent Asian stocks to seven-month highs.
For currency markets, that meant a rebound in the Aussie, long seen as a proxy for China given Australia's export industries, and China's yuan.
The Aussie rose 0.7 percent to $0.7127, recovering most of the losses it suffered on Tuesday after a central bank meeting. The New Zealand dollar also firmed.
The yuan rose in offshore markets to as much as 6.7050 yuan per dollar, with analysts citing both improved optimism about momentum in the Chinese economy and the trade negotiations with the United States.
"The conclusion is that the trade talks this week is crucial - either a deal can be done, or the negotiation will be extended again to June at least," Commerzbank analysts said in a note.
Sterling adding to its overnight gains after Prime Minister Theresa May announced talks with the opposition Labour party in a bid to break the Brexit deadlock that may lead to a softer departure deal with the EU.
The euro rose 0.4 percent as the dollar pulled back from its recent highs, touching $1.1246. The single currency had fallen below $1.12 on Tuesday, nearing a 21-month low, as worries over the relative weakness in the euro zone economy sent investors into dollars.
The greenback dropped against its rivals, with its index down 0.3 percent to 97.047 after climbing to a 3-1/2-week peak of 95.517 the previous day.
Central banks have turned more dovish this year as they look to avert an economic slowdown, led by the Federal Reserve.
JP Morgan Asset Management's currency chief investment officer Roger Hallam said that if the European Central Bank decided to reduce interest rates further, "such an outcome would likely push EURUSD below $1.10."
Against the yen, however, the dollar rose 0.2 percent as the rally in risk assets undermined demand for a currency that investors typically buy when they want safety.
The Japanese currency dropped to 111.535 yen per dollar .
With risk appetite recovering, the Swiss franc also fell, weakening 0.3 percent to 1.1210 francs per euro. It had strengthened below 1.12 earlier in the week.
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