FOREX-Dollar drops to 2-week low as safe-haven bid ebbs on trade optimism

* China willing to reach agreement with U.S. - Vice Premier Liu He
* U.S. core CPI slips; headline CPI unchanged in September
* Markets expect Fed rate cut later this month
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds comments, FX table, U.S. data, updates prices, changes byline, dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 10 (Reuters) - The dollar fell to two-week lows on Thursday, with safe-haven demand for
the currency waning, as investors grew optimistic about a trade deal between the United States and China.
"There is growing optimism that we could get some partial agreement on trade between the U.S. and
China. I think both sides are needing to have a win," said Edward Moya, senior market analyst, at OANDA in
New York.
"So there is less safe-haven demand for the dollar. If we get some type of trade deal or
mini-agreement or mandate, you're going to see that being supportive of European assets. We're seeing the
euro now back above $1.10, which has been the resistance," he added.
Chinese Vice Premier Liu He said on Thursday China is willing to reach an agreement with the United
States on matters that both sides care about so as to prevent friction from leading to any further
escalation, the state news agency Xinhua reported.
Liu, China's top trade negotiator, made his comment in Washington when he met with U.S. officials.
Trade talks between the two countries started on Thursday.
The markets also largely shrugged off core U.S. inflation data that was lower than forecast.

The dollar index, a gauge of the greenback's value against six major currencies, was on track for its
biggest daily drop in five weeks.
The yen, another safe haven in times of geopolitical and financial stress, also slid to a one-week
trough against the dollar, weakening as well against riskier currencies but with higher yields such as the
Australian dollar.
Earlier reports that the United States is weighing a currency pact with China that could also see a
planned tariff hike next week being suspended fueled a rally in risky assets, and kicked of weakness in
the dollar.
In mid-morning trading, the dollar index fell 0.3% to 98.83 and was on track for its biggest
single-day drop since Sept. 4.
The dollar's weakness ignited a rally in the euro with the single currency rallying to a
two-week high. The euro was last at $1.1017, up 0.4%, as hedge funds cut back their extreme short bets.
Against the safe-haven yen, however, the dollar was last up 0.4% at 107.87 yen.
The dollar was little moved after data showed U.S. consumer prices were unchanged in September and
underlying inflation slipped. The report supported expectations the Federal Reserve will cut interest
rates in October for the third time this year.
The U.S. consumer price index edged up 0.1% in August. Economists polled by Reuters had forecast the
CPI nudging up 0.1% in September and rising 1.8% on a year-on-year basis. Excluding the volatile food and
energy components, the CPI climbed 0.1% after gaining 0.3% for three straight months.
Market bets for a quarter--point U.S. rate cut swelled to 85% at its next policy meeting in October,
compared to 53% a month earlier.

========================================================
Currency bid prices at 10:21AM (1421 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar EUR= $1.1016 $1.0969 +0.43% -3.95% +1.1034 +1.0972
Dollar/Yen JPY= 107.9000 107.4600 +0.41% -2.14% +107.9100 +107.0400
Euro/Yen EURJPY= 118.87 117.90 +0.82% -5.82% +118.8900 +117.5800
Dollar/Swiss CHF= 0.9948 0.9956 -0.08% +1.37% +0.9962 +0.9915
Sterling/Dollar GBP= 1.2266 1.2204 +0.51% -3.85% +1.2278 +1.2207
Dollar/Canadian CAD= 1.3279 1.3330 -0.38% -2.63% +1.3345 +1.3280
Australian/Doll AUD= 0.6763 0.6723 +0.59% -4.06% +0.6769 +0.6711
ar
Euro/Swiss EURCHF= 1.0960 1.0925 +0.32% -2.61% +1.0967 +1.0900
Euro/Sterling EURGBP= 0.8980 0.8986 -0.07% -0.04% +0.9019 +0.8974
NZ NZD= 0.6317 0.6291 +0.41% -5.96% +0.6335 +0.6278
Dollar/Dollar
Dollar/Norway NOK= 9.1243 9.1721 -0.52% +5.62% +9.1816 +9.1096
Euro/Norway EURNOK= 10.0530 10.0628 -0.10% +1.48% +10.0878 +10.0438
Dollar/Sweden SEK= 9.8431 9.9586 -0.75% +9.81% +9.9583 +9.8191
Euro/Sweden EURSEK= 10.8443 10.9258 -0.75% +5.65% +10.9325 +10.8310


(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London
Editing by Nick Zieminski)