FOREX-Mexican peso jumps on U.S.-Mexico deal, yuan dips to 2019 lows

* Mexican peso rises as much as 2% against dollar
* China's onshore yuan touches 2019 low after weak import
data
* Dollar index up 0.2%, bouncing after having lost 1.2% last
week
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Daniel Leussink
TOKYO, June 10 (Reuters) - The Mexican peso jumped against
the dollar on Monday after the United States and Mexico struck a
migration deal late last week to avert a tariff war, providing
some much-needed relief to fragile market sentiment.
Over the past year, trade disputes between the United States
and its trading partners, including a long-running conflict with
China, have slowed global growth and unsettled financial
markets.
China's exports unexpectedly returned to growth in May
despite higher U.S. tariffs, data showed on Monday, but many
suspected the rise was due to firms front-loading shipments to
avoid higher U.S. tariffs. Fears of a longer U.S.-China trade
war continued to persist. The figures showed imports in May dropped 8.5% from a year
earlier, a much worse than expected outcome that signalled weak
domestic consumption and weighed on the yuan.
The Mexican peso MXN=D4 rose 2% to 19.2275 pesos per
dollar after trading resumed for the first time after Mexico
agreed on Friday to expand along the entire border a programme
that sends migrants seeking asylum in the United States to
Mexico. U.S. President Donald Trump had threatened to impose 5%
import tariffs on all Mexican goods starting on Monday if Mexico
did not commit to do more to tighten its borders.
"We all knew that Donald Trump was unpredictable, but this
was taking it to a whole new level," said Chris Weston,
Melbourne-based head of research at foreign exchange brokerage
Pepperstone.
"This was political, it was social. It meant that financial
markets had to wear a higher risk premium."
Futures for the S&P 500 ESc1 were last up 0.2%. Benchmark
10-year Treasury yields jumped back 3 basis points to 2.114%
US10YT=RR after hitting a 21-month low of 2.053% on Friday
after soft U.S. jobs data.
Against the safe-haven yen JPY= , the dollar gained 0.25%
to 108.475 yen. The yen gained in late May on the deteriorating
global trade outlook as the currency tends to benefit during
geopolitical or financial stress as Japan is the world's biggest
creditor nation.
Bart Wakabayashi, Tokyo branch manager at State Street Bank,
said the lift to sentiment from the U.S.-Mexico deal would
"probably spill over to optimism with China and hopefully some
progress there."
"We've had trade talks with the EU, with Japan. Hopefully
these will start to turn to the positive narrative which should
see further dollar weakness in the yen," he said.
Still, the dollar's gains were checked by rising
expectations the Federal Reserve will cut interest rates during
the second half of the year.
Those views were bolstered on Friday when data showed
nonfarm payrolls increased by 75,000 jobs last month, much
smaller than the 185,000 additions estimated by economists in a
Reuters poll, suggesting the loss of momentum in economic
activity was spreading to the labour market. Fed funds rate futures are still pricing in more than two
25-basis-point rate hikes by the end of this year even after
their retreat early on Monday after the U.S.-Mexico migration
deal.
"The market is saying it is not a question of if, it is a
question of when, and to what extent, we're going to get a rate
cut for this year," said Pepperstone's Weston.
Against a basket of six peers, the dollar rose 0.2% to
96.750 .DXY , recovering slightly after ending with a 1.2% loss
last week, its worst weekly performance since the week of Feb.
16, 2018.
Group of 20 finance leaders said on Sunday that trade and
geopolitical tensions have "intensified", raising risks to
improving global growth, but they stopped short of calling for a
resolution of the deepening U.S.-China trade
conflict. Elsewhere, the Chinese yuan CNY=CFXS was last down about
0.3% at 6.9336 per dollar in onshore trade after briefly
brushing its lowest since late November in the wake of the weak
import data.
The Australian dollar AUD=D4 slipped 0.4% to $0.6973,
giving up some of last week's gains, when it rose 0.9%.
The euro EUR= dipped nearly 0.2% to $1.1313, retreating
from an 11-week high of $1.1348 touched on Friday.


(Editing by Shri Navaratnam and Jacqueline Wong)