FOREX-Dollar holds gains as investors cheer U.S. economic outlook

* Dollar hangs on to late-week gains
* Aussie drifts higher, but capped by rate-cut risk
* China rate-set eyed at 0130 GMT
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, Jan 20 (Reuters) - The dollar began the week on a
firm note on Monday as economic data pointed to strength right
across the U.S. economy, reducing the likelihood of interest
rate cuts.
The greenback held steady near a one-week high against the
euro EUR= , at $1.1096, and just below an eight-month peak on
the Japanese yen, at 110.19 yen per dollar JPY= .
"People are just searching out good news across the world,"
said Chris Weston, Head of Research at Melbourne brokerage
Pepperstone.
"An emerging theme driving FX in 2020, in the absence of
central bank divergence, I think, is economic divergence and
relative economic trends," he added.
Figures on Friday showed U.S. homebuilding surged to a
13-year high in December, with retail sales also on the rise and
a gauge of manufacturing activity rebounding to its highest in
eight months. Futures pricing suggests nobody thinks the U.S. Federal
Reserve will cut rates when it meets at the end of the month.
FEDWATCH
The strength comes as European economic data points in the
opposite direction. The German economy last week posted its
weakest growth since 2013, while British inflation is anaemic
and retail sales are sliding.
The pound GBP= edged lower on Monday to $1.3002, its
weakest in a week. Against a basket of currencies, the greenback
was steady at 97.620, a whisker below a three-week high hit on
Friday .DXY .
Trade was tepid leading in to a U.S. holiday on Monday.
China, meanwhile, on Friday posted its slowest annual growth
figure in almost 30 years, although December data showed revived
business confidence and quickening factory output. financial markets are evenly divided over whether
the benchmark lending rate will be lowered or kept steady in
response, when it is set at 0930 GMT on Monday. The yuan held flat at 6.8643 per dollar in offshore trade
CNH= , not far below a six-month high it reached last week.
The Australian and New Zealand dollars crept up slightly,
although gains were capped as investors look to Australian jobs
data due on Thursday for a crucial clue to the next move for
Australian interest rates.
The Aussie AUD=D3 last traded 0.1% firmer at $0.6880,
while the kiwi NZD=D3 rose by the same margin to $0.6615.
The Reserve Bank of Australia meets next month with
widespread bushfires, and their depressing effect on already
weak consumer sentiment, adding to the case for further stimulus
following three rate cuts last year.
Futures are pricing a 46% chance of a rate cut when the RBA
meets on Feb. 4, but that will likely shift higher if Thursday's
read on unemployment puts it higher than market expectations of
5.2%.
"A 'high' unemployment rate above 5% will reinforce the view
that further stimulus is required," Commonwealth Bank of
Australia analysts wrote in a note. "We expect the RBA will
deliver more policy stimulus with a 25bp rate cut."