NEW YORK (Reuters) – The dollar rallied from three-month lows on Thursday, with investors reducing bearish positions on the currency as they await resolution of U.S.-China trade negotiations, the U.S. government shutdown, and Britain’s exit from the European Union.

Analysts said the dollar’s gains were also helped by the euro falling, as it hit key resistance levels.

“The anti-dollar rally we saw yesterday is just stalling out,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

“We’re very much in a wait-and-see mode. The market is waiting for resolution on the trade front, U.S. shutdown, and Brexit – three factors that are keeping the market in suspended animation right now,” he added.

In midmorning trading, the dollar index rose 0.1 percent to 95.338, after earlier dropping to a three-month trough. It has weakened in four of the last six sessions as traders bet U.S. interest rates will stay steady in 2019.

Minutes from the Federal Reserve’s Dec. 18-19 meeting showed several policymakers were in favour of keeping rates steady this year.

Investors are now looking to Fed Chairman Jerome Powell’s speech before the Economic Club of Washington later on Thursday.

“The market is looking for signs that the Fed will pause or significantly reduce its cycle of rate increases this year,” said Dean Popplewell, vice president of market analysis, at OANDA in Toronto.

“Thus far, there are no signals of a Fed U-turn on interest rates, but market pressure is mounting. U.S policymakers to date have been less data-dependent, and more agile in order to respond swiftly to changing conditions,” he added.

The euro, meanwhile, fell from a three-month high, having cleared key market levels earlier after the Fed minutes signalled a more cautious approach toward further rate hikes.

It was last down 0.2 percent at $1.1524 .

Data out of Europe has been fairly tepid. French industrial production fell more than expected in November while Swedish private-sector production data was fairly flat.

China and the United States, meanwhile, have extended trade talks in Beijing, boosting oil prices and broader sentiment.

That has lifted China’s offshore yuan to its highest level since August, along with recent assurances from Beijing of further fiscal boosts to the slowing economy.

The yuan has breached the key 6.8-per-dollar level in both onshore and offshore trade.

Commodity currencies such as the Australian dollar AUD= have been the biggest beneficiaries of improving risk sentiment this week. The Aussie dollar was last up 0.2 percent at US$0.7184.

Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

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