FOREX-Dollar retains gains, yuan higher after US-China trade pact

By Rae Wee and Linda Pasquini

SINGAPORE/GDANSK, May 13 (Reuters) - The dollar on Tuesday held most of the previous session's gains as the market stayed optimistic a tariff deal between the United States and China could calm a trade war between the world's two largest economies.

Washington and Beijing on Monday announced a pause in tariffs that triggered a relief rally across stock markets and currency markets, sending the dollar surging.

Against a basket of currencies, the dollar on Tuesday hovered near a one-month high and was last at 101.56. =USD

It is still below its levels before U.S. President Donald Trump announced tariffs on April 2 and prompted overseas investors to reduce their exposure to U.S. stocks and bonds.

Kit Juckes, chief FX strategist at Societe Generale, said the dollar's bounce was spurred by "positive vibes" following the talks with China and may not last.

"I think we will see a long-term trend where the dollar will weaken as people realise that we've over-invested in U.S. assets in a big way. And that's the sort of tectonic shift, if you like," Juckes said.

An ING note also said nervousness about holding U.S. assets could continue.

"We see this is a bear market correction rather than the start of a major dollar rally," it said.

Versus the Japanese yen, the dollar JPY=EBS was down 0.26% at 148.07 yen, having rallied more than 2% on Monday. The euro EUR=EBS rose 0.16% to $1.1105, after sliding 1.4% overnight.

The dollar fell 0.45% against the Swiss franc to 0.8415, reversing some of Monday's 1.6% jump.

China's yuan scaled a six-month high, peaking at 7.1855 per dollar CNY=CFXS, which in turn lifted the Australian and New Zealand dollars.

The Australian dollar AUD=D3 was up 0.67% to $0.64145 while the New Zealand dollar NZD=D3 gained 0.68% to $0.5897. The two currencies are often used as liquid proxies for the yuan.

Meanwhile, the Swedish crown strengthened against the euro EURSEK= and the dollar SEK=, with the euro down 0.54% at 10.8226 crowns and the dollar 0.7% lower at 9.7422 crowns.

"The outperformance of SEK, AUD, and NZD would typically be suggestive of risk appetite, while the modest gains in havens CHF and JPY are likely more a reflection of stabilisation following their spectacular declines on Monday," analysts at Scotiabank wrote in a note to investors.

FEDERAL RESERVE'S NEXT MOVE?

The de-escalation of U.S.-China trade tensions has led traders to lower their bets on Federal Reserve rate cuts, on the basis policymakers will face less pressure to ease monetary policy to support growth.

Futures show markets are pricing in nearly 56 basis points of Fed cuts by December. 0#USDIRPR

Data on U.S. inflation is due later on Tuesday, when it is expected the core and headline number will have picked up on a monthly basis in April.

"We are in this period where the economic data is so far behind the changes that are happening. So I don't know how the market is going to react to them," Juckes said.

Sterling GBP=D3 ticked up 0.24% to $1.32085, recovering some ground against the dollar after weakening in the previous session.

Among cryptocurrencies, bitcoin BTC= last traded at $103,536, after surging to its highest since January 31 in the previous session.

Ether ETH= was flat at $2,487.12, close to a more than two-month high hit on Monday.