FOREX-Dollar dips after jobs-fueled rally; US-China talks in focus

By Linda Pasquini and Gertrude Chavez-Dreyfuss

GDANSK/NEW YORK, June 9 (Reuters) - The U.S. dollar slipped against most major currencies on Monday, as optimism over a better-than-expected U.S. employment report was offset by caution ahead of pivotal U.S.-China trade talks set to take place later in the day.

Top officials from both countries were in London for a meeting to address disagreements around a preliminary agreement struck last month in Geneva, which had briefly cooled tensions between the world's two largest economies.

The talks come at a crucial time for both sides, with China grappling with deflation and trade uncertainty dampening sentiment among U.S. businesses and consumers, prompting investors to reassess the dollar's safe-haven status.

Data showed China's export growth slowed to a three-month low in May as U.S. tariffs slammed shipments, while factory-gate deflation saw its worst level in two years.

Customs data showed that China's exports to the U.S. plunged 34.5% year-on-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the COVID-19 pandemic upended global trade.

The dollar was down about 0.2% against the Japanese currency JPY=EBS at 144.635 yen in late morning trading after two consecutive weeks of gains.

Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rises in bond yields.

The euro EUR=EBS, meanwhile, was up slightly against the greenback at $1.1404, as markets continued to price in the European Central Bank's monetary policy outlook issued last week, in which it indicated it may be close to ending its easing cycle.

Sterling also rose versus the greenback, adding 0.3% to $1.3558.

"The dollar is struggling to find clear direction following last week's data points and the situation is looking more like the second half of the year the Fed will need to get dovish and help the financial environment," said Juan Perez, director of trading at Monex USA in Washington.

"Ultimately, if the U.S. is going to be struggling, there is no clear reason to have any long-term faith in the dollar."

Elsewhere, China's offshore yuan CNH= was last at 7.18 per dollar, little changed on the day.

"How the (US-China) trade talks go definitely is going to be critical for overall sentiment," said Kit Juckes, chief FX strategist at Societe Generale.

He said Asia-Pacific currencies including the Japanese yen and Australian and New Zealand dollars would likely see the biggest reaction to headlines from the talks.

New Zealand's dollar NZD=D3 rose 0.5% to US$0.6045, while the Australian dollar AUD=D3 was last up 0.3% at US$0.6515 in light volumes as markets were closed for a public holiday.

Also on the trade front was a report that said Japan's chief trade negotiator Ryosei Akazawa is planning a sixth round of talks in Washington.

An inflation report out of the U.S. for May will be in the spotlight later in the week as investors and Federal Reserve policymakers look for evidence on the damage trade restrictive policies have had on the economy.

Fed officials have signalled that they are in no rush to cut interest rates and signs of economic resilience will likely cement their stance.

Interest rate futures indicate that investors are anticipating the central bank may cut borrowing costs by 25 basis points, with the earliest move expected in October this year, according to data compiled by LSEG. 0#USDIRPR

"May is the first month where the impact of Trump's 10% universal tariff on imports ex-USMCA (United States-Mexico-Canada Agreement) is expected to show. The Fed will want a few months of inflation data in order to judge the tariff impact and most importantly, its persistence," analysts at ANZ Bank said.