Dollar jumps vs yen as risk appetite returns on US-China trade deal hopes

U.S. dollar bills against the front of a North American house.
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The dollar jumped against the safe-haven Japanese yen on Thursday after U.S. President Donald Trump said the United States was "very close" to nailing down a trade deal with China, just days before new U.S. tariffs on Chinese imports were due to be imposed.

"Getting VERY close to a BIG DEAL with China," Trump posted on Twitter.

Trump was expected to meet with his top trade advisers on Thursday to discuss the Dec. 15 tariffs deadline, sources have told Reuters.

Against the Japanese yen, which tends to draw investors during times of geopolitical or financial stress as Japan is the worlds biggest creditor nation, the dollar rose 0.55% to 109.14, a near one-week high.

Against the offshore Chinese yuan, the dollar fell 0.69% to a one-month low.

"We have seen a strong risk-on reaction in the FX markets," said Vassili Serebriakov, an FX strategist at UBS in New York.

Serebriakov, however, cautioned about putting too much stock in the trade-related headlines.

"It is still too early. We have to see whether this is delivered or not," he said.

The dollar was also supported by a Wall Street Journal report which said U.S. negotiators have offered to slash existing tariffs by as much as half on $360 billion of Chinese-made goods and cancel the new round of levies slated to take effect Sunday.

The dollar index, which measures the greenback against six major currencies, was up 0.39% at 97.46.

Thursday's strength helped the dollar reclaim most of the ground lost on Wednesday after the Federal Reserve held interest rates steady and said a significant, persistent inflation rise would be needed to hike rates again.

The euro was about flat on the day after the European Central Bank maintained its ultra-easy monetary policy at Christine Lagarde's first meeting in charge on Thursday, while the pound eased ahead of the outcome of the UK election.

"It's pretty much a status quo in many ways," said Brad Bechtel, managing director FX at Jefferies in New York.

The British pound stepped back from a near nine-month high on Thursday as investors booked profits from a recent rally in case of a surprise UK election outcome later in the day. Sterling was 0.55% lower against the dollar.

Voters were heading to the polls in an election that will pave the way for Brexit under Prime Minister Boris Johnson or propel Britain toward another referendum that could ultimately reverse the decision to leave the European Union.

Voting ends at 2200 GMT (5 p.m. ET), with exit polls and early results due after that. Traders expect an outcome as early as 0300 GMT on Friday.