FOREX-Hopes for U.S. stimulus breakthrough push dollar to lowest in more than six weeks

* Dollar index falls after Trump's pro-stimulus comments
* Yuan surges after firmer central bank guidance
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates prices, adds comment)
By Elizabeth Howcroft
LONDON, Oct 21 (Reuters) - The dollar extended its losses on
Wednesday, hitting its lowest in more than six weeks, after U.S.
President Donald Trump boosted hopes for a large fiscal stimulus
package, prompting some traders to ramp up bets on riskier
currencies.
Lawmakers in Washington have been negotiating intermittently
since August, with Democrats arguing for a bigger package to
help manage the economic fallout from coronavirus.
Trump raised hopes for a breakthrough on Tuesday by saying
he was willing to accept a large aid bill, despite opposition
from his own Republican party. The dollar fell in response to the comments, even though
markets generally expect more fiscal stimulus to be passed in
the near future regardless of whether it is agreed before the
election.
"It's not a gamechanger – I think the base scenario for the
market is that there will be another fiscal stimulus package at
some point in the next few weeks or maybe in a few months," said
Thu Lan Nguyen, FX and EM analyst at Commerzbank.
"The market has still reacted positively to it because
obviously the earlier the better in the current situation."
At 1102 GMT, the dollar was down 0.3% against a basket of
currencies, at 92.733 =USD , having hit a low of 92.685 earlier
in the session.
Nguyen said that the day's currency market moves were not
typical "risk-off" moves, as the safe-haven Japanese yen was up
around 0.5% against the dollar, close to one-month highs, at
104.845 JPY=EBS .
Rather, the hopes for fiscal stimulus caused dollar weakness
because it boosted long-term inflation expectations for the
United States, she said.
"Normally if you have higher inflation the currency
appreciates because the market expects higher interest rates.
That is not the case for the U.S. at this point any more ... the
Fed now wants higher inflation - it's not going to raise
interest rates automatically if inflation's a little bit
higher," she said, referring to the U.S. Federal Reserve's
policy shift to tolerate higher inflation. The riskier New Zealand and Australian dollars both
advanced, with the Kiwi up 0.8% and the Aussie up 0.6% versus
the dollar by 1107 GMT NZD=D3 AUD=D3 .
The Norwegian crown reached a one-week high of 9.19625
versus the U.S. dollar NOK=D3 , and the Canadian dollar rose to
its strongest in more than six weeks, touching 1.3081 per dollar
CAD=D3 .
The euro rose to a one-month high versus the dollar in early
trading and was up 0.3% at $1.18575 at 1108 GMT EUR=EBS .
China's yuan surged, in both offshore and onshore trading,
led by firmer central bank guidance and recent data suggesting a
more sustained recovery in the world's second-largest economy.
The offshore yuan reached its strongest in two years versus
the U.S. dollar towards the end of the Asian session at 6.6278
before easing somewhat. By 1108 GMT, it was up 0.4% at 6.6393
CNH=EBS . Elsewhere, sterling jumped to as high as $1.3071 after the
European Union's chief negotiator said that a Brexit deal with
Britain was "within reach" GBP=D3 .