By Anneken Tappe, MarketWatch

Focus in Europe remains on Brexit and France protests

After a day dominated by Brexit headlines, currency markets were driven by news on the trade front on Tuesday, helping risk appetite across the board.

Treasury Secretary Steven Mnuchin, Trade Representative Robert Lighthizer and Chinese Vice President Liu He kicked off a new round of trade talks (http://www.marketwatch.com/story/us-china-kick-off-new-round-of-trade-talks-with-focus-on-agriculture-economic-reform-2018-12-11) with a phone call in which "changes to fundamental Chinese economic policies" were discussed. (https://www.wsj.com/articles/u-s-china-trade-talks-get-under-way-11544498812)

Correspondingly, many risk-sensitive currencies, including the Australian dollar, as well as many emerging markets units, were strengthened against the buck.

The ICE U.S. Dollar Index retraced some of its earlier losses and was last up 0.2% at 97.401. In Monday's economic data, the November producer-price index (http://www.marketwatch.com/story/us-wholesale-prices-barely-rise-in-november-as-inflationary-pressures-recede-2018-12-11) crept up 0.1%, but the annual rate slipped to 2.5%.

Meanwhile, the Aussie dollar , which is a China proxy due to the close trade ties between the two countries, fetched $0.7204, up from $0.7188 late Monday in New York.

China's yuan was stronger as well, with one dollar sliding to 6.8995 yuan in Beijing, down 0.2%, and 6.6030 yuan offshore, also down 0.2%.

Also check out:Reserve Bank of India head steps down in potential blow to central bank independence (http://www.marketwatch.com/story/reserve-bank-of-india-head-steps-down-in-potential-blow-to-central-bank-independence-2018-12-10)

Back in the old world, U.K. Prime Minister Theresa May was taking meetings with European leaders across the continent on Tuesday in an effort to shore up political capital and safe her Brexit deal.

Reports that German Chancellor Angela Merkel was opposed to further Brexit negotiations hurt both the euro and the British pound. Sterling dropped to a fresh 20-month low (http://www.marketwatch.com/story/british-pound-hits-fresh-20-month-low-as-uks-may-struggles-with-brexit-deal-2018-12-11) on Tuesday, after first meeting that mark on Monday (http://www.marketwatch.com/story/sterling-dives-to-fresh-18-month-low-as-brexit-vote-reportedly-cancelled-2018-12-10) when May's government pulled a crucial vote on her deal that had been schedule for Tuesday. The Prime Minister seeks to reschedule the vote, with Jan. 21 being the latest possible date.

Sterling last bought $1.2529, up from $1.2561 late Monday.

Check out:Turmoil leaves investors struggling to pin down likeliest Brexit scenario (http://www.marketwatch.com/story/turmoil-leaves-investors-struggling-to-pin-down-likeliest-brexit-scenario-2018-12-11)

And don't miss:U.K. delays Brexit vote -- what happens next? (http://www.marketwatch.com/story/uk-is-said-to-delay-brexit-vote-what-happens-next-2018-12-10)

Investors are trying to assess the potential impact of a hard Brexit, in which the U.K. would leave the EU without defining its future relationship with the continent. Some say the mere fact that May pulled the vote signals the tremendous defeat she would have suffered, and with time not being on the U.K.'s side, a no-deal Brexit is becoming more real. Others argue that British lawmakers are clearly scrambling to avoid just that but nevertheless worry that May's deal isn't sufficient.

The euro slipped to $1.1324, compared with $1.1358 late Monday in New York, with focus on the continent lingering on the negotiations with London, as well as escalating protests in France.

"In what could be good news for Italy and its fight with the EU over its budget, French President Emmanuel Macron announced a little giveaway of his own for French voters in an attempt to buy off the 'gilet jaunes' protests. The only problem with that is it will blow a great big hole in the French budget sending it up to 3.5% of GDP," wrote Michael Hewson, chief market analyst at CMC Markets.

"This will be something that Brussels will be unable to ignore if they sanction Italy for a budget well below that. Christmas may well have come early for Italian deputy [prime ministers] Matteo Salvini and Luigi di Maio as they look to force the EU to back down over implementing an excessive deficit procedure against the Italian government," he said.

Rome had repeatedly clashed with Brussels over its 2019 budget proposal which included a higher deficit than European Union lawmakers were comfortable with.

(END) Dow Jones Newswires

December 11, 2018 16:27 ET (21:27 GMT)