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FOREX-Dollar falls to 3-month low on hopes of Brexit, U.S.-China trade deals

By Gertrude Chavez-Dreyfuss

* Euro up vs dollar as risk appetite returns * Sterling rises to 3-month high vs dollar * Safe-haven yen drops to 2-1/2-month low vs dollar * EU, Britain to hold intense negotiations on Brexit deal * China drums up hope for a partial trade deal * Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh (Adds new comment, Fed announcement on T-bill purchases, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Oct 11 (Reuters) - The dollar dropped to a three-month low on Friday as safe-haven buying eased and risk sentiment improved on hopes of progress in trade negotiations between the United States and China, as well as increased chances of an orderly British exit from the European Union. Sterling rose to a more than three-month high versus the dollar on optimism about Brexit, while the euro advanced to a three-week peak as risk appetite rose. At the same time, other safe-haven currencies such as the yen and Swiss franc slid on the day. "The risk premium on the dollar, some of the froth around that, seems to be coming off with some progress on U.S.-China trade talks, maybe, and some progress, maybe, on Brexit," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. President Donald Trump and other U.S. officials on Friday signalled good news was coming in trade talks with China, while Beijing indicated it was open to a "partial" deal that would avoid a planned hike in tariffs on its goods. Officials, including U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, ended a second day of talks in Washington on Friday. Trump and Liu are scheduled to meet later on Friday. On Brexit, the EU agreed on Friday to hold another round of intense negotiations with London in a bid to secure a deal. EU negotiator Michel Barnier and his British counterpart Stephen Barclay earlier held what both sides called a "constructive" meeting in Brussels as Britain's scheduled departure date of Oct. 31 nears. The British and Irish prime ministers said on Thursday they had found "a pathway" to a possible deal, and by Friday some officials were expressing guarded optimism. Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto, said sterling risk reversals, an indicator of currency sentiment in the options market, are exploding higher into positive territory, with calls now trading at a big premium to puts. The move suggested that option traders are betting sterling has turned the corner against the dollar, he said. In the United States, the Federal Reserve announced on Friday it will start buying about $60 billion per month in Treasury bills to ensure "ample reserves" in the banking system. It emphasized though that the new program does not mark a change in monetary policy. "This allays some of the funding concerns," said Scotiabank's Osborne. "It's not dollar-negative because it removes some of the upside risks of the squeeze on funding that we saw at month- and quarter-end," he added. In afternoon trading, the dollar index was down 0.4% at 98.307, after earlier declining to a 3-1/2-month low of 98.197. The euro, meanwhile, rose 0.3% to $1.1040, mirroring the three-week high reached on Thursday. The safe-haven yen weakened against the dollar, which gained 0.5% to 108.50 yen. The dollar earlier touched a 2-1/2-month high against the yen. Sterling surged to a more than three-month high of $1.2708 and a five-month peak of 87.02 pence against the euro. The pound was last up 1.7% at $1.2662. ======================================================== Currency bid prices at 3:01PM (1901 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.1038 $1.1004 +0.31% -3.76% +1.1062 +1.1002 Dollar/Yen JPY= 108.5000 107.9600 +0.50% -1.60% +108.6100 +107.8600 Euro/Yen EURJPY= 119.80 118.80 +0.84% -5.09% +119.9900 +118.7400 Dollar/Swiss CHF= 0.9975 0.9969 +0.06% +1.64% +0.9990 +0.9959 Sterling/Dollar GBP= 1.2658 1.2440 +1.75% -0.78% +1.2705 +1.2409 Dollar/Canadian CAD= 1.3186 1.3290 -0.78% -3.31% +1.3300 +1.3170 Australian/Doll AUD= 0.6798 0.6761 +0.55% -3.56% +0.6810 +0.6754 ar Euro/Swiss EURCHF= 1.1013 1.0970 +0.39% -2.14% +1.1039 +1.0966 Euro/Sterling EURGBP= 0.8719 0.8845 -1.42% -2.95% +0.8868 +0.8696 NZ NZD= 0.6335 0.6318 +0.27% -5.69% +0.6353 +0.6317 Dollar/Dollar Dollar/Norway NOK= 9.0706 9.1238 -0.58% +5.00% +9.1290 +9.0509 Euro/Norway EURNOK= 10.0130 10.0430 -0.30% +1.07% +10.0510 +10.0015 Dollar/Sweden SEK= 9.8018 9.8403 -0.07% +9.35% +9.8465 +9.7863 Euro/Sweden EURSEK= 10.8227 10.8301 -0.07% +5.44% +10.8546 +10.8090 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Kirsten Donovan and Sonya Hepinstall)