* Dollar near 2-month high, Fed seen cutting rates by 25 bps
* Pound takes breather after fall, still down 4.3% in July
* Euro lingers just off two-year lows on weak data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Updates prices, adds chart, quote)
By Sujata Rao
LONDON, July 31 (Reuters) - The dollar hovered just off
two-month highs on Wednesday as robust U.S. data all but
eliminated chances the Fed will deliver a half-point interest
rate cut, while the euro remained near two-year lows on weak
inflation and growth readings.
The Federal Reserve is expected at 1800 GMT to announce its
first rate cut since 2008 and 78% of traders now price a 25
basis point cut, with the likelihood of a deeper easing
diminishing as data, including second-quarter economic growth
and consumer confidence, has beaten forecasts.
The focus will instead be on whether the Fed leaves the door
open for further easing to insulate the economy from slowing
global growth and fallout from trade conflicts.
Markets are pricing three cuts by year-end, the CME's
Fedwatch tool shows.
"A 50 bps cut would provide reason for bigger swings but we
see little chance of that. With President Trump yesterday
demanding a larger cut in a tweet, we have a very compelling
reason for the Fed to deliver just 25bps," analysts at MUFG told
clients, referring to the Fed's need to show it will resist
White House pressure for major easing.
While the dollar is unlikely to weaken after the cut, any
mention from Fed chairman Jerome Powell of global downside risks
means "scope for dollar strength should be limited", they added.
By 1000 GMT, the dollar index .DXY was flat around 98.08
after pulling back from a two-month high of 98.206 touched on
Tuesday. It is however set for its biggest monthly gain since
October and is up for the ninth straight day.
The dollar remains supported, moreover, from expectations
the European Central Bank and the Bank of Japan will also ease
policy. Even after a one percentage point drop in the Fed funds
rate - a 2.25%-2.50% range - U.S. rates will remain well above
most G10 peers, analysts note.
Conviction the ECB will cut rates and resume money-printing
stimulus was strengthened after data showed economic growth in
the euro zone halved in the second quarter. Inflation also slowed in July, with core inflation, the
measure closely watched by the ECB, at 1.1% year-on-year. It
follows a slump in Germany to the lowest since November 2016.
the absence of an uptrend in core inflation, weak GDP
growth and the growth risks firmly pointing to the downside, the
ECB looks likely to announce an entire package of stimulus
measures at the September meeting," Nordea analysts said.
The ECB will implement a 10bp cut in the deposit rate, start
asset purchases at a pace of 30 billion euros monthly, plus
offer strengthened forward guidance, they predicted.
The euro did not react to the data but stayed around 0.1%
lower at $1.1145, having hit two-year lows last week around
$1.110 EUR=EBS .
The yen stood just off three-week lows to the dollar after
the BOJ refrained from expanding stimulus, though it committed
itself to doing so "without hesitation" if required.
The pound, which has tumbled this week as investors rushed
to factor in the growing possibility of Britain leaving the
European Union without transition trade arrangements in place,
firmed 0.2% to $1.2167 GBP=D3 , crawling back from a 28-month
trough of $1.2120 plumbed on Tuesday.
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dollar index https://tmsnrt.rs/2MtQULZ
Euro zone inflation/gdp https://tmsnrt.rs/2yodkWr
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