* Weak U.S. producer prices support another Fed interest rate cut
* Pound slips on reports of Brexit talks close to breakdown (Updates with afternoon trading)
By Saqib Iqbal Ahmed
NEW YORK, Oct 8 (Reuters) – The dollar fell against the safe-haven Japanese yen on Tuesday, pressured by renewed worries about trade, but the greenback strengthened against other currencies as Federal Reserve Chair Jerome Powell refrained from committing to more rate cuts even after data showed an unexpected drop in U.S. producer inflation.
The dollar came under pressure after the U.S. State Department said it has imposed visa restrictions on Chinese government and Communist Party officials it believes responsible for detention or abuse of Muslim minorities in Xinjiang province.
On Monday, the U.S. Commerce Department blacklisted Chinese companies over Beijing’s treatment of predominantly Muslim ethnic minorities, and President Donald Trump said a quick trade deal was unlikely.
The dollar fell 0.18% to 107.09 yen. The Japanese currency tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation.
The latest developments come at a critical juncture in the 15-month trade war between Washington and Beijing, which has roiled markets. Top-level talks are scheduled to resume on Thursday and Friday, when Chinese Vice Premier Liu He meets with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington.
“This obviously is not a good precursor before any type of negotiations. There is some trepidation in terms of market expectations (for a deal),” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
“It feels a little bit like a risk-off day,” he said.
Against a basket of six currencies the greenback was 0.15% higher, after Fed chief Powell, in comments to the National Association of Business Economists, did not commit to further rate cuts, noting that the next FOMC meeting is several weeks away.
“His tone and the reminder that the next FOMC meeting was still “several weeks away” suggests that an October rate cut is far from the done deal that the futures market appears to believe,” Paul Ashworth, chief U.S. economist at Capital Economics said in a note.
U.S. producer prices unexpectedly fell in September, leading to the smallest annual increase in nearly three years. This could give the Federal Reserve room to cut interest rates again.
Meanwhile, sterling touched a one-month low against the euro on as investors took fright at reports that Brexit talks between Britain and the European Union were close to breaking down.
The pound was 0.56% lower against the greenback.
(Reporting by Saqib Iqbal Ahmed Editing by Nick Zieminski and David Gregorio)