FOREX-Ahead of G20 summit, dollar bounces on Fed comments

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

By Saikat Chatterjee
LONDON, June 26 (Reuters) - The dollar bounced from a
three-month low on Wednesday as traders dialled back
expectations of aggressive interest rate cuts from the U.S.
Federal Reserve after comments by policymakers.
The euro gained against the perceived safe-haven Swiss franc
and the dollar also strengthened against the yen after U.S.
Treasury Secretary Steven Mnuchin told CNBC that a trade deal
between the United States and China was "about 90%" complete.
"The yen's drop today is probably the most reflective of the
excessive short bets built up against the dollar in recent days
though investors are battening down hatches before the G20
meeting this weekend," said Neil Mellor, a senior FX strategist
at BNY Mellon based in London.
The G20 group of 20 major economies hold a summit in Japan
this weekend with markets focusing on whether U.S. President
Donald Trump and Chinese President Xi Jinping could pave the way
to resolving the trade dispute in their meeting set for the
margins of the summit. Fed Chairman Jerome Powell stressed the central bank's
independence from Trump, who is pushing for rate cuts. St. Louis
Fed President James Bullard, considered one of the most dovish
U.S. central bankers, surprised some investors by saying a 50
basis point cut in rates "would be overdone". The dollar fell last week after policymakers opened the door
to rate cuts in coming months. Some traders thought the Fed
might cut rates by as much as 50 basis points next month.
However, Powell's comments tamped down those expectations,
pulling the dollar up from three-month lows against a basket of
other currencies in the previous session at 95.843 .DXY . It
was up 0.1% at 96.265.
Commerzbank strategists said a 50-basis-point cut would
indicate the Fed was in a hurry, increasing the likelihood more
would be coming than the market expected. Money markets are
currently pricing in up to three rate cuts this year.
But the bounce is likely to be short-lived. Derivative
markets suggest markets are ready for a weaker dollar.
Against the Japanese yen JPY=EBS , for example, traders
have built up large option bets between 107.50 to 107 yen. In
the cash market, the yen was trading at 107.45 yen.
The New Zealand dollar NZD=D3 was the big gainer early in
London against the U.S. dollar. The kiwi NZD=D3 gained 0.4% to
$0.6661 from $0.6536 after the Reserve Bank of New Zealand left
rates unchanged at 1.5% at its policy meeting, though it
signalled another cut was likely. AUD/
Elsewhere, the pound remained near five-month lows at
$1.2669 after Boris Johnson, the leader in a contest to replace
Prime Minister Theresa May, reiterated his commitment to leave
the European Union with or without an agreement by Oct. 31.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
DXY and CFTC https://tmsnrt.rs/2ZWCeZl
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>