* Dollar off 3-week low as U.S. stimulus negotiation hits
snag
* Yuan falls after PBOC removes reserves for forward trading
* Sterling near eyes EU summit ahead of self-imposed
deadline
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, Oct 12 (Reuters) - The dollar inched up in early
Monday trade as riskier currencies slipped after negotiation on
a U.S. stimulus package ran into resistance and as the yuan
dropped after China's central bank took a measure seen as aimed
at curbing its strength.
The euro slipped 0.1% to $1.1817 EUR= while the Australian
dollar shed 0.3% to $0.7222 AUD=D4 . The yen was little changed
at 105.52 to the dollar JPY= .
The U.S. dollar index edged up to 93.108 =USD , bouncing
back from Friday's near-three-week low of 92.997. The index saw
its biggest loss in six weeks on Friday on hopes that a deal for
new U.S. stimulus would be reached.
President Donald Trump on Friday offered a $1.8 trillion
coronavirus relief package in talks with House Speaker Nancy
Pelosi - moving closer to Pelosi's $2.2 trillion proposal.
But Trump's offer drew criticism from several Senate
Republicans, many of whom are uneasy about the nation's growing
debt and concerned a deal would cost Republicans support in the
upcoming presidential election, denting the risk-on mood.
Still, with Nov. 3 election only weeks away, investors bet
that Democrat Joe Biden is more likely to win the U.S.
presidency and offer a larger economic package.
"Over the past few days, the markets seem to assume Biden
will win the election. Trump seems desperate to get a deal but
his comments are getting treated like a noise," said Yusuke
Okada, manager of forex at Mitsubishi Trust Bank.
"But I do think we could see a return of political
uncertainties by the election. Markets seem to have priced in
only the good news," he added.
FORWARD THINKING
The offshore Chinese yuan dropped after the People's Bank of
China (PBOC) said it will lower the reserve requirement ratio
for financial institutions when conducting some foreign exchange
forwards trading. Analysts said the measure could keep the yuan's strength in
check by encouraging the use of forwards.
"The authorities have not stood in the way of yuan strength,
but this move could be seen as a sign that they want to slow the
pace of appreciation," wrote Khoon Goh, head of Asia Research at
ANZ in Singapore.
"Our interpretation is that removing the reserve requirement
is intended to encourage firms to hedge in order to manage
currency risk. It also enhances the foreign exchange market
structure by making it easier for foreign investors to hedge
their onshore portfolio investments."
The yuan hit a 17-month high on Friday, both in onshore and
offshore trade, having gained more than 6% against the dollar
since late May driven by a favourable yield differential between
China and other major economies.
"The yuan has been supported by the relative strength of the
Chinese economy as China has managed the coronavirus much better
than some other countries," said Masashi Hashimoto, senior
economist at Institute for International Monetary Affairs in
Tokyo.
"But the Chinese authorities now appeared to have grown wary
of the yuan's strength," he said.
The yuan last traded at 6.7171 per dollar in offshore trade
CNH=D4 , down 0.4%.
Elsewhere, sterling traded at $1.3035 GBP=D4 , having
reached a one-month high of $1.3050 on Friday on guarded
optimism about Brexit negotiations ahead of a European Union
summit this week.
British Prime Minister Boris Johnson has set a deadline of
the Oct. 15 EU summit for a deal with the union.
Trade is a tad slow overall, due to a holiday in U.S. money
and bond markets on Monday.