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Dollar falls significantly lower after Trump's comments

TOKYO (Reuters) – The US dollar trended lower against a basket of key competitors on Tuesday after US President Donald Trump said he was "not thrilled" by Jerome Powell, the Federal Reserve chairman, about interest rates to increase.

U.S. Dollar banknotes are seen in this photo illustration on February 1

2, 2018. REUTERS / Jose Luis Gonzalez / Illustration

The dollar was also soft as investors from the safe-haven currency pulled out of anticipated talks this week between China and the United States, some of which market players believe this to be one Easing their escalating trade dispute.

The Dollar Index fell 0.37 percent against a basket of six other currencies to 95,554 after 0345 GMT after reaching its lowest level since 9 August, at 95,440.

"At the moment, the markets fear that Trump might have some influence on Fed policy," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"Especially the dollar / yen, which is sensitive to the price action of the United States, remains under pressure."

The yen was basically flat at 110.08 yen from 0345 GMT, gains after touch as high as 109.775 yen earlier. The dollar fell below the psychologically significant level of 110 yen on Tuesday for the first time since June 28.

The greenback slipped after Trump said Monday in a Reuters interview that he was "not enthusiastic" about Powell's interest rate hike. Trump nominated Powell last year to replace former Fed chairman Janet Yellen.

The President frightened investors in July when he criticized the Fed for tightening monetary policy. On Monday, he said the US Federal Reserve should take better interest rates.

Yamamoto of Mizuho Securities said Fed officials seem to be unaffected by Trump's comments.

"As long as the US economy is in order … then I think there is no reason to stop the interest rate hikes from the Fed's point of view," he said.

Trump also said the US Federal Reserve should do more to boost the economy, while accusing China and Europe of manipulating their respective currencies.

Growing trade tensions between the US and its trading partners and a slump in the Turkish lira had pushed the dollar to 96,984 on 15 August, its highest level since June 2017.

The dollar rally paused ahead of trade talks Chinese and US officials in Washington. Mid-week meetings are likely to be lower-level officials, but these are the first formal US-China trade talks since June.

"It is a positive news that China and the United States are negotiating and it is not bad for the Renminbi and Chinese stocks," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

On Tuesday, the Chinese offshore yuan was nearly flat against the greenback, rising 0.07 percent to 6.8326 per dollar from 0347 GMT.

The euro, which fell to a 13-month low early last week amid fears that the Turkish crisis could hurt the European bank, won on Tuesday.

The single currency edged up 0.36 percent to $ 1.15225 from 0347 GMT, but made some gains after trading at $ 1.1544 during early morning trading.

Sera said the euro may have found support in buying from one or more institutional investors in Japan after traders returned to work on Monday after the Bon holiday last week.

"It's important to keep a close eye on how the euro is stabilizing," Sera said.

The Australian dollar edged 0.13 percent to $ 0.7350, proving resilient to political unrest in its home country, with Prime Minister Malcolm Turnbull surviving on a dangerously narrow margin.

Edited by Sam Holmes and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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