* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Oct 10 (Reuters) - The dollar was on track for its
biggest daily drop in five weeks on Thursday against its rivals
as the prospects of a partial trade deal between China and the
United States fuelled appetite for trade-oriented currencies
such as the euro and the Australian dollar.
Reports the United States is weighing a currency pact with
China that could also see a planned tariff hike next week being
suspended fueled a rally in risky assets, though trading
remained volatile as negotiations got underway. "We are not surprised by the dollar weakness as a trade deal
would trigger further risk appetite and the Fed also seems to be
in easing mode," said Nikolay Markov, a senior economist at
Pictet Asset Management.
Against a basket of its rivals .DXY , the dollar fell 0.4%
to 98.66 and was on track for its biggest single-day drop since
Sept. 4.
The dollar's weakness ignited a rally in the euro EUR=EBS
with the single currency rallying 0.5% to a two-week high at
$1.10335 as hedge funds cut back their extreme short bets.
The euro has been caught in the cross fire between a
protracted trade war between the United States and China as the
trade-oriented economy has struggled to gain traction this year
and pulling the currency down 4% so far this year.
Expectations of more rate cuts also weighed on the
greenback.
Market bets for a quarter point U.S. rate cut has swelled to
85% at its next policy meeting in October compared to 53% a
month earlier.
OPTIMISM
With negotiations between Beijing and Washington getting
underway on Thursday, market watchers say any concessions from
China would be touted as a success from U.S. officials and that
might fuel further yen weakness and gains in the Aussie dollar.
"The (U.S.) President should be keen to achieve that, in
particular during the election campaign. ..I think the optimism
has risen repeatedly over the past few days," Ulrich Leuchtmann,
an FX strategist at Commerzbank, said in a daily note.
A currency pact would pave the way for further negotiations
on core issues such as intellectual property and forced
technology transfers, with reports that Beijing has offered to
increase purchases of agricultural goods further signaling a
thaw in trade tensions.
"It remains to be seen whether a partial trade deal will be
acceptable for President Trump who wants to secure a broader
agreement," MUFG strategists said.
The Chinese currency in the offshore market CNH=D3 gained
for a second day, rising 0.3% versus the greenback to 7.1145
yuan per dollar.
The pound climbed 0.4% to $1.2247, though it remained close
to a one-month low amid uncertainty over Britain's exit from the
European Union before a slew of British data.
Dollar Drop https://tmsnrt.rs/2MsZGbd
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>