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FOREX-Dollar heads for weekly gain as pandemic recovery stalls

    * JPY tests two-week peak, AUD tests two-week low
    * Dollar poised for 0.8% weekly rise, best since late Sept
    * Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

    By Tom Westbrook
    SINGAPORE, Oct 16 (Reuters) - The yen rose and the dollar
was headed for its best week of the month on Friday, as surging
coronavirus cases and stalled progress toward U.S. stimulus had
investors seeking safe assets.
    As fresh curbs to combat COVID-19 were introduced in Europe
and Britain, the world's reserve currency surged to a two-week
high of 93.910 against a basket of currencies. It held
just below that peak in the Asia session.
    The safe-haven yen crept back toward a two-week high
it hit on Wednesday and last traded at 105.24 per dollar. The
Australian dollar slipped 0.3% and other majors nursed losses.
    London enters a tighter COVID-19 lockdown from midnight,
which with a curfew in Paris leaves two of Europe's largest
cities living under state-imposed restrictions.
    The U.S. Midwest is also battling record surges in new cases
just as data shows the U.S. recovery losing steam and as
stimulus plans bog down in a three-way negotiation between the
White House, Senate Republicans and House Democrats.

    "Markets fear a slowdown in activity as new virus cases
rise," ANZ bank analysts Susan Kilsby and David Croy said in a
note.
    "The deterioration is evident everywhere across Europe,
which is a major blow to the recovery's momentum and reinforces
deflationary risks."
    Risk sensitive currencies have been hit hardest, with the
Australian dollar, the kiwi and Norwegian krone
 leading weekly falls. The Norwegian krone is
nursing a 2.5% loss this week, while the Aussie is down 2.3%.
    Sterling was also heavily sold on Thursday on
concerns about the obstacles keeping the European Union and
Britain from reaching a Brexit trade deal. It has lost 1.1% this
week and held at $1.2893 on Friday.
    The EU has put the onus on Britain to compromise or stand
ready for trade disruptions in less than 80 days. British Prime
Minister Boris Johnson will respond and set out his approach to
the talks on Friday.
    The euro was flat in Asia on Friday but has lost
about 1% for the week. The U.S. dollar was likewise steady and
has gained 0.8% against a basket of currencies this week, its
largest weekly rise since late September.
    
    BEARISH AUSSIE, BULLISH YUAN
    Asia's standout movers for the week have been the Australian
dollar and yuan.
    The Aussie has fallen to the bottom of a range that has held
it for several months after investors considered comments from
the Reserve Bank of Australia governor mentioning rate cuts and
bond buying as policy options, raising the chance of monetary
easing.
    "The comments have a 'Jackson Hole' feel about them,"
Westpac economist Bill Evans said in a note, referring to the
August speech from U.S. Federal Reserve Chairman Jerome Powell
outlining a new and more accomodative approach to inflation.
    "The conclusion from both speeches is that we can expect
policy to remain stimulatory for even longer," Evans said.
    The yuan, meanwhile, has been resilient in the wake of a
nudge lower from the People's Bank of China. Last weekend the
PBOC cut the cost of shorting the currency and has been gently
edging the onshore trading band a bit weaker.
    Yet, supported by strong bond market inflows and bets on a
Joe Biden presidency ushering in more stable Sino-U.S.
relations, the yuan has fallen just 0.4% in a week where
dollar has jumped.
    At 6.7139 per dollar in onshore trade, it is only a fraction
shy of the 17-month high it made a week ago.
    "The yuan has entered a massive bull channel, and USDCNH is
on a max downtrend," said Stephen Innes, strategist at brokerage
Axi.     
    ========================================================
    Currency bid prices at 1:53PM (553 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar                  $1.1706        $1.1707     -0.01%         +4.42%      +1.1716     +1.1701
 Dollar/Yen                   105.2550       105.4600    -0.18%         -3.08%      +105.4200   +105.2350
 Euro/Yen                     123.22         123.44      -0.18%         +1.04%      +123.4700   +123.1200
 Dollar/Swiss                 0.9149         0.9143      +0.05%         -5.46%      +0.9152     +0.9141
 Sterling/Dollar              1.2894         1.2899      -0.04%         -2.78%      +1.2908     +1.2887
 Dollar/Canadian              1.3228         1.3226      +0.04%         +1.85%      +1.3237     +1.3214
 Aussie/Dollar                0.7075         0.7095      -0.27%         +0.84%      +0.7097     +0.7071
 NZ                           0.6591         0.6597      -0.11%         -2.07%      +0.6603     +0.6588
 Dollar/Dollar All spots
Tokyo spots
Europe spots 
Volatilities 
Tokyo Forex market info from BOJ 

 (Reporting by Tom Westbrook; Editing by Sam Holmes and
Jacqueline Wong)
  
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