FOREX-Dollar steadies as trade deal hopes fade, pound soft

* Safety flows support dollar as hopes for trade
breakthrough fade
* Pound sits by one-month low as Brexit negotiations stumble
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tom Westbrook
SINGAPORE, Oct 9 (Reuters) - The dollar steadied on
Wednesday as hopes for a breakthrough in U.S-China trade talks
waned, sending investors into less risky assets, while the pound
wallowed near a month low on deepening uncertainty over Brexit.
The U.S. imposition of visa restrictions on Chinese
officials, and the blacklisting of Chinese firms, over the
treatment of Muslim minorities have cast a pall over trade
discussions scheduled in Washington for the rest of the week.
The resulting risk aversion had bolstered the dollar
overnight, which is seen as a safe-haven owing to its position
as a global reserve currency.
It mostly held those gains in Asian hours, though trade was
wobbly as investors also grappled with remarks overnight from
Federal Reserve chairman Jerome Powell flagging further rate
cuts and bond buying. The greenback rose slightly to 107.14 Japanese yen JPY=
and was steady at $1.0962 on the euro EUR= . It was flat around
99.093 against a basket of major currencies .DXY .
"The timing of the U.S. travel bans and company blacklists
associated with human rights issues have not helped to maintain
a positive backdrop to these trade negotiations," said Rob
Carnell, ING's chief economist for Asia-Pacific.
"They also look likely to provoke some retaliation from
China, just a day before Vice Premier Liu He is due to arrive in
Washington for trade talks," he said.
Liu and U.S. Trade Representative Robert Lighthizer and
Treasury Secretary Steven Mnuchin are due to meet on Thursday.
A Chinese diplomat told Reuters that China wanted a deal.
But prospects for progress appear to be dimming as the
dispute widens.
On top of the visa restrictions and corporate blacklistings,
the Trump administration is also moving ahead with discussions
around restrictions on capital flows into China, Bloomberg
reported, citing people familiar with the matter. "The tensions will persist through to the year-end at
least," said Westpac analyst Imre Speizer in Auckland, who is
not expecting the talks to deliver a breakthrough deal.
"It'll be volatile good news, bad news, repeat for the rest
of the year, but overall a negative tone."
The Chinese yuan CNY= , the most sensitive currency to the
trade talks, had dropped to a one-month low in offshore trade
overnight, but was a little stronger at 7.1434 per dollar in
onshore trade on Wednesday.
The Australian and New Zealand dollars ticked higher, with
the Aussie AUD=D3 rising 0.2% to $0.6741 and the kiwi NZD=D3
0.3% to $0.6312. Sterling GBP= languished at $1.2214, close to its lowest
since early September, on reports that talks between Britain and
the European Union were close to breaking down without an exit
deal.
In a telephone call on Tuesday, German Chancellor Angela
Merkel told British Prime Minister Boris Johnson that a deal was
"overwhelmingly unlikely," a Downing Street source said.
The Times newspaper reported Johnson also faces a fresh
rebellion in cabinet, with a group of ministers poised to quit
due to concerns he is leading the country into a no-deal exit.
That leaves the outcome on Oct. 31, when Britain is due to
quit the EU, deeply uncertain.
"The ever-fluid Brexit saga is expected to leave the pound
exposed to politically-driven bouts of volatility over the
coming weeks," said FXTM analyst Han Tan.