FOREX-Dollar dips with all eyes on the Fed

(Recasts; adds analyst quote; updates prices; changes dateline,
previous LONDON)
By Kate Duguid
NEW YORK, June 19 (Reuters) - The dollar dipped against the
euro on Wednesday, though remained near two-week highs as
investors waited for the Federal Reserve to release a policy
statement later in the day.
The central bank is expected to leave interest rates
unchanged at the current range between 2.25% and 2.5%. But slow
employment growth in May, the ongoing trade war with China and
weak inflation data have increased expectations for dovish
remarks. "We don't think the Fed will cut today and it seems more
likely that this meeting is an appetizer to the G20 entree,"
wrote Mark McCormick, global head of foreign exchange strategy
at TD Securities.
"Given current market pricing, we think there's a fairly
high hurdle for a dovish knee-jerk (reaction) on the release of
the statement. We suspect they will drop 'patient' and signal a
readiness to ease."
Forecasts of a rate cut on Wednesday were at 24.2%,
according to CME Group's FedWatch tool, up from 21.7% on
Tuesday. Futures markets have almost fully priced in a 25 basis
point rate cut in July and two to three cuts by the end of the
year.
Against the euro, the dollar was 0.17% weaker at $1.121
EUR= . But traders held off on making big moves, and despite
the dip, the dollar still hovered near the two-week highs
reached in the prior session after European Central Bank
President Mario Draghi said policymakers would provide more
stimulus if inflation does not pick up.
Draghi's about-face on easing on Tuesday fueled talk of a
worldwide wave of central bank stimulus, firing up stocks, bonds
and commodities and weakening the euro, although currency moves
were relatively small. President Donald Trump said on Tuesday he would have an
extended meeting with Chinese President Xi Jinping at the Group
of 20 summit later this month, raising hopes they can ease
tensions in a trade dispute that has damaged the world economy.
U.S. Trade Representative Robert Lighthizer on Wednesday
said he and U.S. Treasury Secretary Steven Mnuchin will likely
meet Chinese Vice Premier Liu He ahead of the G20 summit in
Japan later this month. UBS Wealth Management said that the dollar could rise
against the yen if the Fed were less dovish than expected or the
G20 summit ends with a temporary U.S.-China trade war truce
"A bounce toward 110 would make adding short USDJPY
positions attractive," UBS said. "We expect USDJPY to grind
lower as U.S. growth slows and as U.S.-China trade tensions
persist."
The yen stood little changed at 108.43 yen per dollar
JPY= .