FOREX-Dollar builds on rebound as hopes rise for U.S.-China trade truce

* Media report says U.S., China have agreed to tentative
truce
* Dollar rises as safe havens weaken, yen loses 0.3%
* Euro trades around $1.1365
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, June 27 (Reuters) - The dollar extended its recovery
on Thursday, gaining versus the yen and euro, on hopes the
United States and China will agree a trade truce before a G20
summit in Japan this weekend.
The two countries have agreed to a tentative truce in their
trade dispute, Hong Kong's South China Morning Post said, citing
sources, before U.S. President Donald Trump and Chinese
President Xi Jinping leaders meet on Saturday. That supported buying of the dollar, which had weakened in
recent weeks on expectations the Federal Reserve would cut
interest rates and buying of safe-haven currencies such as the
Japanese yen by investors worried about the trade conflict.
"The positive signals sent out by the U.S. side in the lead-
up to the meeting weaken the `safe havens' JPY and CHF," said
Commerzbank analysts, referring to the Japanese yen and Swiss
franc.
A dollar index rose 0.1% against a basket of currencies to
96.351 .DXY . The dollar rose 0.1% against the euro to $1.1356
EUR=EBS .
The yen, which had jumped to five-month highs earlier this
week, fell 0.3% to 108.10 JPY=EBS . The Swiss franc dropped
0.2% to 1.1143 francs per euro EURCHF=EBS .
China's offshore yuan rose 0.2% to 6.8778 yuan per dollar
CNH=EBS , helping the remninbi back towards a six-week high of
6.8370 yuan per dollar touched last week.
The outcome of the Group of 20 summit is expected to
influence the Fed, which opened the door to possible rate cuts
after last week's meeting.
The potential implications of the Trump-Xi meeting for U.S.
monetary policy are huge, said Masafumi Yamamoto, chief forex
strategist at Mizuho Securities.
"If the two sides agree not to impose more tariffs, the Fed
would no longer need to cut rates," he said. "On the contrary,
if the talks point to the imposition of more tariffs, that could
nudge hesitant policymakers towards rate cuts.
"Despite the fact that I am not sure whether conciliatory
signals ahead of the meeting of the two Presidents really solve
all the actual reasons for risk-off."
Elsewhere, sterling fell to $1.2678 GBP=D3 as investors
wait out the Conservative party leadership contest. Whoever wins
will also become Britain's next prime minister and take Britain
towards its scheduled departure date from the European Union of
Oct. 31.