FOREX-Yen on backfoot as returning confidence dulls safe-haven allure

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Temporary calm descends on FX market
* Stock gains overnight ease risk aversion
* Markets still on edge over trade war, Brexit

By Stanley White
TOKYO, Aug 29 (Reuters) - The dollar held gains against the
safe-haven yen on Thursday as ebbing recession worries soothed
markets after earlier volatility although the pound nursed its
losses as investors became increasingly worried about a hard
Brexit.
Sterling fell 0.6% against the greenback on Wednesday after
British Prime Minister Boris Johnson moved to suspend
parliament, seen as a bid to limit debate ahead of the Oct. 31
deadline for the UK to leave the European Union. That increased
expectations of a "no-deal Brexit," which would mean a departure
without trading agreements in place. In Asian trade, investors will keep a close eye on stock
markets, following gains on Wall Street overnight, as well as
the Chinese central bank's daily yuan fixing and any news of
U.S.-China trade talks.
Sentiment in the currency market is likely to remain
fragile, because there are still signs of stress. The U.S.
Treasury yield curve remains inverted, which is commonly
considered a sign of an impending recession.
"The gains in stocks have provided some temporary relief to
risk sentiment, which has allowed the dollar to reclaim the 106
yen mark," said Minori Uchida, head of global markets research
at MUFG Bank in Tokyo.
"This is likely temporary, because we are still very much
worried about tariffs. In addition, long-term yields show that
Fed is behind the curve on rate cuts."
Yields on 30-year Treasuries have hit a record low as
investors scramble for the safety of government debt.
Against the dollar, the yen was steady early in Asian
trading at 106.06 yen JPY=EBS after falling 0.3% on Wednesday.
The dollar index =USD , which measures the greenback
against a basket of six major currencies, rose 0.16% to 98.189.
Spot gold XAU= was flat at $1,539.65 per ounce, following
a 0.2% decline on Wednesday.
The yen and gold are both considered safe-haven assets, so
they tend to weaken when other financial markets show signs that
risk aversion has abated.
Currencies showed little reaction after U.S. Treasury
Secretary Steven Mnuchin said he has no intention of intervening
in the dollar right now, according to Bloomberg. However, traders may remain concerned about U.S. currency
policy because President Donald Trump has complained that the
dollar is too strong and has repeatedly attacked the Federal
Reserve for not cutting interest rates further.
Many traders say such intervention is unlikely, especially
after the United States labelled China a currency manipulator
earlier this month.
Still, there is some concern given Trump's often erratic
statements about the Fed and about negotiations with China to
solve the trade war.
The Trump administration on Wednesday made official its
extra 5% tariff on $300 billion in Chinese imports and set
collection dates of Sept. 1 and Dec. 15, prompting hundreds of
U.S. retail, footwear, toy and technology companies to warn of
price hikes. The trade dispute between the United States and China is
now in its second year and is placing increasing strain on the
global economy, forcing policy makers to respond with interest
rate cuts and stimulus measures to bolster growth.
The pound held steady at $1.2217 GBP=D3 on Thursday and
was last quoted at 90.74 pence per euro EURGBP=D3 , following a
0.5% decline on Wednesday.
The suspension of UK parliament, which had to be approved by
Queen Elizabeth, limits the time opponents have to derail a
disorderly Brexit, but also increases the chance that Johnson
could face a vote of no-confidence in his government, and
possibly an election.