U.S. trade talk doubts lift dollar off one-month lows

• The dollar edged up on Monday after four straight losses last week, while China's offshore yuan and the euro were undermined by fresh jitters on the trade war front and data that added to evidence of economic recession in Germany.
• "Markets have a bit of risk-off tone today and risk-off is generally dollar positive,"

LONDON: The dollar edged up on Monday after four straight losses last week, while China's offshore yuan and the euro were undermined by fresh jitters on the trade war front and data that added to evidence of economic recession in Germany.

A Bloomberg report that Chinese officials were reluctant to agree to U.S. President Donald Trump's broad trade deal cast a pall over hopes for some progress in U.S.-China talks this week.

But the report that Beijing has narrowed the scope of a potential trade deal lifted appetite for the dollar and yen at the expense of trade-linked currencies such as the Australian dollar and the euro..

The dollar, which tends to benefit when trade tensions flare up, rose further off one-month lows hit last week when a string of poor data suggested the trade war was inflicting a bigger toll on the world's biggest economy.

"Markets have a bit of risk-off tone today and risk-off is generally dollar positive," Stephen Gallo, head of FX at BMO Capital Markets, said, though he noted the dollar faced short-term headwinds.

"We are not overly bullish on the dollar, with Trump impeachment risks and increased focus on what (the U.S. Federal Reserve) might do to alleviate money market tensions --that could involve more balance sheet expansion," Gallo said.

He was referring to the recent surge in overnight funding costs in U.S. repo markets which has raised speculation the Federal Reserve would resume some asset purchases.

The greenback firmed 0.15pc against a basket of currencies by 0730 GMT, having last week tumbled around 1pc off 2-1/2-year highs touched in early-September. Against the yen it was 0.1pc lower at 106.84.

Hedge funds have added to their massive long dollar positions, which rose in the latest week to a nine-week high, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday..

The euro remains out of favour, the data showed, with bearish bets on the currency climbing sharply.

The latest data appeared to justify the pessimism, with German industrial orders falling more than expected in August on weaker domestic demand -- clear evidence that a manufacturing slump is pushing Europe's largest economy into recession.

The euro traded as low as $1.0964 but held off 2-1/2-year lows of $1.0879 last Tuesday.

The Chinese yuan fell 0.3pc to 7.13 per dollar in offshore trade. There was no onshore trading as China is still on break for its national day. Gallo said the clouds over the dollar offered some support to the yuan.

"If things break down this week, I don't think you will see dollar/yuan above 7.20 on that headline," he added.

Other trade-exposed currencies such as the Australian dollar  and the Korean won also fell, with the former losing a quarter percent and the won down 0.4pc.

Sterling slipped 0.2pc to around $1.23, with only a few weeks until UK's scheduled exit from the European Union on Oct. 31.