FOREX-Euro surges as investors see ECB done with stimulus

* Yen falls, Chinese yuan rises on Sino-US trade deal
optimism
* Sterling jumps as investors cut short positions
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Olga Cotaga
LONDON, Sept 13 (Reuters) - The euro rocketed to a 17-day
high against the dollar on Friday as German government bond
yields surged on the back of investors thinking the European
Central Bank was done stimulating the ailing euro zone economy
after cutting rates on Thursday.
The central bank cut its deposit interest rate by 10 basis
points to a record low of minus 0.5% and said it would restart
bond purchases at a rate of 20 billion euros a month from Nov. 1
for an indefinite time.
The revived bond purchases exceeded many expectations
because they are set to run until "shortly before" the ECB
raises interest rates. Given that markets do not expect rates to
rise for nearly a decade, such a formulation suggests that
purchases could go on for years, possibly through most of
Christine Lagarde's term leading the bank. As he announced the monetary stimulus package, ECB President
Mario Draghi also emphasized on the importance of fiscal
stimulus and structural reforms, essentially saying that only a
combination of both monetary and fiscal stimulus could revive
European growth.
The ECB "gave the impression to the market that we're pretty
much done" with monetary policy stimulus, said Vasileios
Gkionakis, global head of fx strategy at Lombard Odier, adding
that "there's no denial that the ECB delivered on all fronts."
"The main message (from the ECB) is that we've seen the
bottom in the euro/dollar," Gkionakis said.
The euro was up 0.3% at $1.1096 GBP=D3 after jumping
earlier to $1.11095, its highest since Aug. 27. The 10-year
German Bund yield surged to a six-week high of negative 0.48%
DE10YT=RR .
The day before, the common currency briefly went below
$1.10. Deutsche Bank had projected the euro would fall below
$1.10 and now that it had, the German bank said it was now
neutral on the common currency.
"We think the risks on the euro are now turning more
two-sided," said George Saravelos, Deutsche's currency
strategist, in a note, adding he was "not willing to turn
bullish just yet."
"We believe EUR/USD will remain stuck around 1.10," he said.
The dollar rose overnight against the Japanese yen - after
Donald Trump said he would not rule out an interim trade pact
with China - then gave back some of those gains. Washington and Beijing are preparing for new rounds of talks
aimed at curbing their trade war, which has dragged on for more
than a year, roiling financial markets and threatening to push
other economies into recession. The yen, widely considered a
safe-haven currency, tends to rise during times of heightened
economic or market stress and vice versa.
The greenback was last down 0.1% at 107.99 versus the yen
JPY=EBS after surging to a six-weeks high of 108.265.
The Chinese yuan also strengthened in the offshore market to
a four-week high of 7.0330 versus the dollar on the back of
Sino-U.S. trade optimism CNH=EBS . Dollar/yuan was last down
0.3% at 7.0752.
"We've managed to scale back our pessimism about U.S.-China
trade talks, which is a supportive factor for now," said Takuya
Kanda, general manager of research at Gaitame.com Research
Institute in Tokyo.
Elsewhere, receding fears of a no-deal Brexit and dollar
weakness pushed the pound to a seven-week high of $1.2435
GBP=D3 on Friday. Investors trimmed their expectations of a
no-deal Brexit after Northern Ireland's largest political party
said it may agree on certain European Union rules after Britain
exist the EU, even though it later denied those comments.
Against the euro, the gains were more constrained, with
euro/sterling last down 0.5% at 89.25 pence EURGBP=D3 .