* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, July 11 (Reuters) - The dollar was stuck at a
five-day low on Thursday after Federal Reserve Chair Jerome
Powell kept the door open for U.S. interest rate cuts, though
investors were wary of selling dollars aggressively until a
policy review later this month.
With U.S. inflation data due shortly, traders are prepared
to sell dollars if the data undershoot forecasts. But analysts
say the bigger risk may be that inflation beats expectations and
causes to dollar to rebound.
" ... Perhaps the case for a bigger move in the currency
would be if core inflation surprises to the upside, given the
amount of Fed policy easing which is already baked into the swap
curve," Stephen Gallo, European head of FX strategy said.
In testimony to Congress, Powell pointed to "broad" global
weakness that was clouding the U.S. economic outlook amid
uncertainty about the fallout from the trade conflict with China
and other nations. His comments did little to change market expectations --
money markets expect one rate cut later this month and a
cumulative 68 basis points of cuts until the end of 2019 -- but
market watchers said Powell's views will drive the dollar.
Against a basket of other currencies .DXY , the dollar fell
0.2% to 96.83, its lowest since July 5 and near the three-month
low of 95.84 from late June.
"Once we get a quarter-point rate cut, which markets are
widely expecting, Powell will keep all options open on the
table, and that means the dollar's outlook is uncertain," said
Manuel Oliveri, an FX strategist at Credit Agricole in London.
Uncertainty prompted some investors to unwind short
positions against some heavily shorted currencies, such as the
Australian dollar, which rose 0.2% in early London trading.
Latest positioning data showed that hedge funds had built up
a large short position in the Australian dollar in recent weeks
because of the trade tensions between Washington and Beijing.
In contrast, hedge funds had unwound long positions in the
dollar, especially against a basket of major and emerging-market
currencies, NETUSDALL= anticipating U.S. rate cuts.
The euro, which dipped below $1.12 earlier this week,
extended its recovery and was trading 0.2% up on day at $1.1271
even as expectations grew that the European Central Bank would
loosen policy.
Focus turned to the release of the ECB's June minutes and
whether it has started discussions about a return to asset
purchases.
The British pound rose from six-month lows to $1.2529
GBP=D3 . But it remains down for the week, amid Britain's
economic gloom and a fast-approaching Brexit deadline.
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G10 FX valuations https://tmsnrt.rs/32mX9GU
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