FOREX-Dollar heads towards 3-month lows before Fed meeting; Draghi eyed

Reuters

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    * Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

    By Saikat Chatterjee
    LONDON, June 18 (Reuters) - The dollar weakened against its
rivals on Tuesday, heading back towards a recent three-month low
before a U.S. central bank meeting gets underway with
expectations growing the Fed will signal its first rate cut in a
decade.
    A CME Fedwatch tool puts the probability of a quarter-point
interest rate cut by the Fed at 20%, with a 70% probability of a
rate cut at its next meeting in July.
    But with so much dovishness already priced into the markets
and the dollar having weakened 1% over the past three weeks,
some market analysts say the greenback may strengthen if the Fed
signals a more neutral stance.
     "The majority view among the Fed comments does not suggest
any particular appetite for an immediate rate cut, say in June
or July," HSBC strategists said in a note. "The balance of risks
favors being long the dollar, not least because positioning is
likely a little lighter after the recent sell-off."
    Against a basket of its rivals  .DXY , the dollar edged 0.1%
lower at 97.437 and not far away from a three-month low of 96.46
hit earlier this month.
    While hedge funds have pared back some of their long
positions on the dollar in recent weeks, overall net positions
remain near 2019 highs.
    The euro  EUR=EBS  wallowed at the lower end of a recent
trading range against the dollar, holding above the $1.12 line,
as markets awaited a speech by European Central Bank chief Mario
Draghi where he might shed some more light on how policymakers
will fight the next economic downturn.
    With benchmark interest rates in the eurozone already in
negative territory and inflation expectations well below central
bank forecasts, financial markets will be closely watching
Draghi's comments.
    Elsewhere, sterling  GBP=D3  held near the $1.2550 line as
traders waited for news on the contest for the leadership of the
ruling Conservative party.
 
   

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 (Reporting by Saikat Chatterjee; Editing by Andrew Heavens)
 ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;
Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))

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