June 28, 2019 / 5:07 AM / 3 months ago

FOREX-Dollar holds steady, markets edgy ahead of Trump-Xi talks at G20

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Focus shifts to U.S.-China at G20

* Some optimism on deal to avert trade war escalation

* Euro on holding pattern before consumer price data (Adds strategist’s quote, details on Australian dollar)

By Stanley White

TOKYO, June 28 (Reuters) - The dollar trod water early on Friday as investors awaited a crucial meeting between the leaders of the United States and China at a Group of 20 summit over the weekend for any signs of progress to end their heated trade war.

The mood improved the previous day after the South China Morning Post said Washington and Beijing were laying out an agreement that would help avert the next round of tariffs on an additional $300 billion of Chinese imports.

Negotiations between the world’s two largest economies have been fraught, so traders and analysts caution that a resolution at the G20 summit is far from certain. Yet, markets seem to be clinging on to hopes of progress in a meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 in the western Japanese city of Osaka.

Trump is set to hold the much-anticipated trade talks with Xi at 11:30 a.m. (0230 GMT) on Saturday.

“The minimum to keep markets where they’re at now is for the United States and China to agree to keep talking and buy some time,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management Co.

“Markets are doubtful the leaders of (the United States and China) can reach a full agreement.”

The dollar traded at 107.66 yen, little changed on the day but on course for a 0.3% gain this week as the greenback mounted a recovery from a five-month low of 106.77 yen reached on Tuesday.

The dollar index, which measures the U.S. currency against six of its peers, was at 96.217, unchanged on the week.

The United States and China have already imposed tariffs of up to 25% on hundreds of billions of dollars of each other’s goods in a dispute about China’s trade practices that has lasted nearly a year.

The drawn out trade war has slowed global growth and pushed many central banks toward cutting interest rates to support their economies. Any sign the trade war will come to an end would be a significant boost for the global economic outlook.

“Market moves show there is less concern about the U.S.-China meeting, but the results of the meeting have to match these expectations for the dollar and risk assets to go higher,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Anything less than that will lead to a big reaction in the opposite direction.”

Highlighting the jitters surrounding G20, spot gold perked up in Asian trading, rising 0.66% to $1,418.31 per ounce. Some investors consider gold a safe-haven asset that will retain its value better than other assets during times of uncertainty.

The Australian dollar clung onto recent gains against the greenback, trading at $0.7009. The Aussie has risen 2.6% since hitting a five-month low of $0.6832 on June 18.

China is the main destination for exports from Australia’s vast commodity sector, so the outcome of U.S.-China talks could greatly influence the Aussie.

Traders are also focused on a Reserve Bank of Australia meeting July 2, where the central bank is expected to cut rates by a quarter of a percent to 1.00%.

The euro last traded at $1.1364, unchanged on the week. However, analysts say sentiment on the single currency remains weak due to speculation the European Central Bank will ease monetary policy.

Any weakness in June inflation data for the euro zone, set for release later on Friday, would support the argument for monetary easing. In May, core inflation decelerated sharply.

Sterling held steady at $1.2673, on course for a 0.6% weekly decline on uncertainty about who will be Britain’s next prime minister and on worries about whether the nation would be able to avoid a no-deal, chaotic exit from the European Union. (Reporting by Stanley White Editing by Shri Navaratnam & Kim Coghill)

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