* Dollar recovers as equities gain, Fed hikes in focus
* Euro declines as ECB's Draghi moderates inflation outlook
* Yen, Swiss franc attract modest safe-haven demand
* Graphic: World FX rates in 2018 (Adds detail, updates prices)By Tom FinnLONDON, Oct 12 (Reuters) - The dollar edged up on Friday,reflecting investor confidence in the U.S. economy, despitecriticism by President Donald Trump of the Federal Reserve and asell-off in U.S. equities.
A recent decline in stocks has yet to spread into foreignexchange markets, with emerging-market currencies stillappreciating and the safe-haven Japanese yen and Swiss franc notbudging significantly.The dollar has risen 2.5 percent since July on expectationsinterest rates will soon rise further and on safe-haven flowsfrom the U.S.-China trade war.But a drop in U.S. Treasury bond yields andweaker-than-forecast rise in U.S. consumer prices saw the dollarshed half a percent on Thursday as traders cut their bets onFederal Reserve rate hikes.Hedge funds have staked out their longest dollar positionssince the end of 2016 and markets are focused on any change ineconomic data that could alter the Fed's thinking.The dollar index , a gauge of its value against sixmajor currencies, traded 0.1 percent at 95.143 on Friday, justbelow its monthly high of 96.15 on Tuesday."We doubt the dollar will derive much further cyclicalsupport through the remainder of the year. Political uncertaintycould also undermine the dollar ahead of the mid-term electionson 6 November," said Derek Halpenny, European head of GlobalMarkets Research at MUFG.But other analysts see few signs the dollar will fallfurther. Fed officials said last month they expected three ratehikes in 2019."If the equity markets were to calm down again quicklywithout developments spreading to other asset markets, there isno reason in our mind why the Fed should not continue its ratehikes as planned," said Esther Maria Reichelt, an FX strategistat Commerzbank in Frankfurt."The dollar will be able to maintain its current stronglevels for now but further appreciation potential is limited,"she said.The euro edged down on Friday after reaching aweekly high at 1.1611 after ECB President Mario Draghi toneddown his outlook for a rise in underlying inflation from"relatively vigorous" to "gradual". ECB minutes on Thursday suggested the central bank was ontrack to normalise its ultra-loose monetary policy this yeardespite concern about slowing growth in Europe .
"We've heard quite a bit of comment from euro zonepolicymakers recently about rising inflation and the message isconsistent, which is that price pressures are growing," saidKathy Lien, managing director of foreign exchange strategy at BKAsset Management.The Japanese yen , a preferred currency in times ofmarket turbulence, traded at 112.34 on Friday. It hadstrengthened to 111.83 versus the dollar on Thursday, itshighest since Sept. 18.The Chinese yuan fell 0.6 percent to 6.9198, its biggestdaily decline in six weeks. U.S. President Donald Trump told FoxNews on Thursday there was much more he could do that would hurtChina's economy, suggesting no signs of backing off a growingtrade war with Beijing.The Australian dollar was at $0.7122, recovering fromMonday's two-year low of $0.7039. The rally was aided bypromising news out of China, its biggest trade partner. (Additional reporting by Vatsal Srivastava, editing by LarryKing)
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