FOREX-Sino-U.S. trade talk doubts lift dollar off one-month lows

* Dollar index inches up as Bloomberg report fuels doubt on
Sino-U.S. trade talks
* Chinese yuan down 0.3%, euro undermined by more weak data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Sujata Rao
LONDON, Oct 7 (Reuters) - The dollar edged up on Monday
after four straight losses last week, while China's offshore
yuan and the euro were undermined by fresh jitters on the trade
war front and data that added to evidence of economic recession
in Germany.
A Bloomberg report that Chinese officials were reluctant to
agree to U.S. President Donald Trump's broad trade deal cast a
pall over hopes for some progress in U.S.-China talks this week.
But the report that Beijing has narrowed the scope of a
potential trade deal lifted appetite for the dollar and yen at
the expense of trade-linked currencies such as the Australian
dollar and the euro. The dollar, which tends to benefit when trade tensions flare
up, rose further off one-month lows hit last week when a string
of poor data suggested the trade war was inflicting a bigger
toll on the world's biggest economy.
"Markets have a bit of risk-off tone today and risk-off is
generally dollar positive," Stephen Gallo, head of FX at BMO
Capital Markets, said, though he noted the dollar faced
short-term headwinds.
"We are not overly bullish on the dollar, with Trump
impeachment risks and increased focus on what (the U.S. Federal
Reserve) might do to alleviate money market tensions --that
could involve more balance sheet expansion," Gallo said.
He was referring to the recent surge in overnight funding
costs in U.S. repo markets which has raised speculation the
Federal Reserve would resume some asset purchases.
The greenback firmed 0.15% against a basket of currencies by
0730 GMT .DXY , having last week tumbled around 1% off
2-1/2-year highs touched in early-September. Against the yen it
was 0.1% lower at 106.84 JPY .
Hedge funds have added to their massive long dollar
positions, which rose in the latest week to a nine-week high,
according to calculations by Reuters and Commodity Futures
Trading Commission data released on Friday. euro remains out of favour, the data showed, with
bearish bets on the currency climbing sharply.
The latest data appeared to justify the pessimism, with
German industrial orders falling more than expected in August on
weaker domestic demand -- clear evidence that a manufacturing
slump is pushing Europe's largest economy into recession.
The euro traded as low as $1.0964 EUR=EBS but held off
2-1/2-year lows of $1.0879 last Tuesday.
The Chinese yuan CNH= fell 0.3% to 7.13 per dollar in
offshore trade. There was no onshore trading as China is still
on break for its national day. Gallo said the clouds over the
dollar offered some support to the yuan.
"If things break down this week, I don't think you will see
dollar/yuan above 7.20 on that headline," he added.
Other trade-exposed currencies such as the Australian dollar
AUD=D3 and the Korean won KRW= also fell, with the former
losing a quarter percent and the won down 0.4%.
Sterling slipped 0.2% to around $1.23 GBP=D3 , with only a
few weeks until UK's scheduled exit from the European Union on
Oct. 31.

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