* Dollar index edged closer to recent two-week lows
* Trade war headlines continue to hog market spotlight
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Dhara Ranasinghe
LONDON, Nov 21 (Reuters) - The dollar was a touch weaker against other major currencies on Thursday, with investors fixated on the latest developments in a bitter 16-month long trade dispute between the United States and China that has dealt a blow to the world economy.
China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing amid continued efforts to strike at least a limited deal, the Wall Street Journal reported on Thursday, citing unnamed sources.
This week has seen a hardening of rhetoric from both sides, prompting investors to scale back optimism that a so-called “phase one” agreement could be signed soon.
The greenback, which has behaved as a safe-haven currency for most of this year, edged up on Wednesday after a report that a deal could be postponed till next year.
At 1120 GMT, the dollar index, which measures the dollar’s value against a basket of currencies, was down 0.1% at 97.82 — nearing two-week lows hit on Monday of around 97.68. It was 0.1% softer versus the euro on the day at $1.10835 and 0.15% weaker against sterling at $1.2940.
“We’re really just waiting to see what happens on the trade front,” said Stephen Gallo, European head of currency strategy at BMO Financial Group in London.
“The shift in sentiment is warranted, a lot of good news had been in the price and some of that has been taken out.”
Gallo said the outlook for the dollar had not shifted that much moving into 2020, with currency markets likely to remain beholden to trade, Brexit and political headlines. Strategists at Citigroup expect the dollar index to weaken by more than 2% over the next year to around 94.
For others, a pause in U.S. Federal Reserve interest-rate cuts was positive for the dollar outlook.
“Over the past year or so there have been times where negative headlines on trade have been negative for the dollar because they have reinforced Fed easing expectations,” said Fritz Louw, a currency strategist at MUFG.
“But if you don’t expect the Fed to cut rates further, the negative trade sentiment impact would probably drive the dollar a bit higher from a safe-haven perspective.”
Minutes released on Wednesday showed that the Fed, which hit pause in its easing cycle following a rate cut in October, is in no hurry to reassess the path of interest rates.
The European Central Bank will release the minutes from its October meeting later on Thursday, with little significant impact on the euro expected.
Against the yen, the dollar was steady at around 108.60 with the Japanese currency supported by renewed trade war jitters.
The passage of a U.S. law supporting anti-government protesters in Hong Kong has added to concern that a trade deal may not be reached soon, bolstering safe-haven assets.
China’s yuan fell in the onshore market to 7.0450 versus the dollar, the weakest since Nov. 1, before steadying at 7.0320. Offshore, the yuan slipped to 7.0533 per dollar, the lowest since Nov. 5, before recovering its losses.
Reporting by Dhara Ranasinghe; Editing by Catherine Evans