FOREX-China's yuan gains after U.S. drops China FX manipulator label

* Dollar rises above 110 yen for first time since May
* Yuan strengthens after U.S. FX manipulator label dropped
* Sterling hits seven-week low against euro
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates with Swiss franc move, analyst quotes)
By Yoruk Bahceli
LONDON, Jan 14 (Reuters) - China's yuan climbed to its
highest level since July on Tuesday and the Japanese yen plumbed
eight-month lows as the U.S. Treasury Department reversed its
decision in August to designate China as a currency manipulator.
The Treasury Department's new report on currency
manipulators could help explain the reason for the Swiss franc
surging to a 33-month high against the euro, some analysts said.
L8N29J36G Washington included Switzerland on a watchlist,
although other market participants said it had been expected and
broader safe-haven flows were behind the franc's move.
The announcement on the yuan came as Chinese Vice Premier
Liu He arrived in Washington ahead of Wednesday's signing with
U.S. President Donald Trump of a preliminary trade agreement
aimed at easing tensions between the two countries. "Washington's decision to lift its designation of currency
manipulator on China has added to the positive mood that has
been already in place ahead of the signing of the trade deal,"
said Minori Uchida, chief currency strategist at MUFG Bank.
People familiar with the negotiations said its removal was
an important symbol of goodwill for Chinese officials.
China has also pledged to buy almost $80 billion of
additional manufactured goods from the United States over the
next two years as part of a trade war truce, according to a
Reuters source. The dollar rose as much as 0.3% against the Japanese yen to
110.22 yen JPY=EBS , its highest since late May versus a
currency that tends to weaken when investors are buoyant. It
last stood at 109.97 yen.
In onshore trade, the yuan strengthened to as high as 6.8731
per dollar CNY=CFXS , its strongest since late July. China's
central bank set the midpoint of the yuan's daily trading band
CNY=PBOC at 6.8954 per dollar on Tuesday, its strongest fixing
since Aug. 1. The offshore yuan also firmed to its strongest level in six
months, hitting 6.8662 yuan before easing off CNH=EBS .
Chinese forecast-beating trade data also helped to boost
optimism about the economy and the yuan. Despite the optimism, some analysts said there were signs of
a bid for safety.
The Swiss franc rose to its strongest since April 2017 at
1.0763 against the euro EURCHF=EBS , up nearly 0.5%. It rose
0.4% versus the dollar CHF=EBS .
Some analysts said this reflected nervousness, as risky
emerging market currencies such as the South African rand and
Turkish lira fared poorly.
"The interesting question is how long can this optimism
last, how much further can it go. A lot surely has to be in the
price," said Jane Foley, senior FX strategist at Rabobank.
"If we were to get another rise in tensions between the U.S.
and China and if we were to turn our attention to phase two (of
the trade deal)... it's very likely that we will see the
renminbi falling again," Rabobank's Foley said, adding that the
currency might face a low at the 7.18 level hit in September.
In Europe, sterling weakened further on Tuesday, hitting a
seven-week low against the euro at 85.95 pence before
recovering. EURGBP=D3
The currency has come under pressure from weak data
releases, raising the chances of a cut to interest rates by the
Bank of England. Money markets forecast an almost 50%
probability of a cut at a meeting on Jan. 30.
The euro was mildly supported by risk-on sentiment,
remaining off a two-week low of $1.10855 EUR=EBS hit on
Friday, last trading at $1.1124.
The dollar index gained 0.1% to 97.43 .DXY .