Dollar hits a two-week high on yen, China-U.S. trade call lifts the Chinese yuan

A telephone call between Chinese trade negotiators and their U.S counterparts lifted the dollar to a two-week high against the Japanese yen.

The USD rose to a high of 109.205 yen, its strongest in two weeks before it settled back at 109.01 yen to show a gain of 0.1% from the previous close.

On Tuesday, China's yuan edged up, due to hopes that the two sides would soon agree on an interim deal to halt their trade war.

Liu He and Robert Lighthizer discussed the issues related to phase one trade agreement and agreed to maintain communication on the remaining concerns.

The yuan rose to 7.240 to the USD, about 0.15% higher than the previous close.

"It wasn't like they agreed to the phase one deal. They just agreed to continue their talk. So some people appeared to have been caught in long position a bit too much," said Shingo Sato, director of the forex at MUFG Bank.

"Still, the bottom line is, we just had additional support to back up optimism since last week on the trade deal," he said.

On Monday, China's official newspaper- Global Times said the two countries were very close to a phase one deal.

"China appears positive to the deal. The dollar could rise further to around 109.50 if U.S. officials visit China," said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Wall Street Journal, reported last week that the Chinese government had invited Lighthizer and Mnuchin to Beijing for a face to face talk.

"Trading in the next couple of weeks will be all about the U.S.-China deal," said Daiwa's Ishizuki.

Other currencies

Despite rising hopes of the U.S.-China trade deal, the Aussie has face pressure from a run of disappointing local economic data. Investors have narrowed the odds on another rate cut from the Reserve Bank of Australia (RBA).

The Aussie fetched $ 0.6772, having touched a one-month low of $0.6768 overnight.

The euro softened to $1.1008, near the one-week low of $1.10035 touched on Monday.

The GBP traded at $ 1.2894, supported by hopes that the ruling Conservatives could win a majority in the Dec. 12 election to end a hung parliament.

The GBP stood at 85.365 pence against the euro, near a six-month high of 85.22, touched on Monday last week.

Overall, currency trading is slowing down ahead of the U.S. Thanksgiving holiday on Thursday.

Traders are also increasingly pricing in tighter trading ranges for major currencies, based on implied volatilities.

One-month euro/dollar implied volatility has fallen to 4.15/4.40 %, the lowest in five years, while three-month volatility hit a record low of 4.4/4.6 %.

The dollar/yen's three-month volatility also stood at 4.775/5.025 %, the lowest since late April and near its historical lows above 4% while three-month volatility on the Australian dollar hit a five-year low of 6.12/6.42 %.