FOREX-Trade talk hopes poise dollar for first positive week this year

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* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh (Recasts; adds analyst quote; updates prices; changes bylineand dateline from LONDON to NEW YORK)

By Kate Duguid

NEW YORK, Jan 18 (Reuters) - The dollar held firm againstits rivals on Friday and was poised for its first weekly gain infive weeks, boosted by optimism about trade talks between Chinaand the United States.

U.S. Treasury Secretary Steven Mnuchin discussed liftingsome or all tariffs on Chinese goods and suggested offering atariff rollback during trade discussions scheduled for Jan. 30,the Wall Street Journal reported on Thursday, citing peoplefamiliar with the internal deliberations.

Although a Treasury spokesman denied the report, thepositive sentiment was enough to lift the dollar index .DXY and the three major U.S. stock indexes Friday morning.

"Yesterday's WSJ headline concerning a possible rollback ofthe Trump tariffs was a setback for (the U.S. dollar/renminbicross), and although it was subsequently denied, it had createdconfusion in the foreign exchange space," said Stephen Gallo,European head of foreign exchange strategy at BMO CapitalMarkets in London.

Chinese Vice Premier Liu He will visit the United States onJan. 30 and 31 for talks aimed at resolving the trade standoffbetween the world's two largest economies.

Stronger-than-expected U.S. industrial production numbersalso helped lift the greenback. American manufacturing outputincreased by the most in 10 months in December, pushed up by asurge in the production of motor vehicles and a range of othergoods, the Federal Reserve said on Friday.

Going into 2019, weakness in the dollar was a consensus viewamong currency market traders. The bet was that the U.S. centralbank would stop raising interest rates and the economy wouldslow after a fiscal boost last year. While expectations of aU.S. rate pause have manifested in money markets, bets on policytightening by other major central banks have also receded,giving a boost to the dollar.

Against a basket of rivals, the dollar was set to rise 0.6percent on the week, its first positive week since mid-December.Against the euro, the dollar had strengthened 0.25 percent to$1.137, its strongest since Jan. 4.

The pound slipped against the euro EURGBP= , partiallytrimming overnight gains, as traders wagered on a secondreferendum vote on Britain's EU membership.


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