FOREX-Dollar eases from three-week highs ahead of Fed speech

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

By Saikat Chatterjee
LONDON, May 13 (Reuters) - The dollar held below a
three-week high on Wednesday ahead of a speech by Federal
Reserve Chairman Jerome Powell on growing speculation that the
United States could introduce negative interest rates.
Though some U.S. policymakers have spoken against negative
interest rates recently, two-year U.S. Treasury yields
US2YT=RR fell to a record low of 0.105% last week and 2021 Fed
fund futures contracts 0#FF: are skirting negative territory.
U.S. President Donald Trump on Tuesday again pushed the Fed
to adopt negative rates as data showed that U.S. consumer prices
dropped 0.8% in April, the biggest decline since the Great
Recession, fuelling the debate over more policy responses.
"If push comes to shove, the Fed would of course consider
negative interest rates, too, but they are likely to be on the
bottom of the Fed's list of possible options when it comes to
supporting the financial system or the economy further," said
Commerzbank strategist Antje Praefcke.
Against a basket of rivals =USD , the dollar index edged
0.1% lower to 99.98, hovering below the three-week high of
100.44 hit on Tuesday. The greenback has gained more than 5%
from an early March low of 94.63.
While the dollar has benefited from recent safe-haven flows
amid the market turmoil, the outlook remains divided, with hedge
funds holding their short bets on the currency while
institutional investors remain bullish. Powell will be speaking on current economic issues in a
webcast hosted by the Peterson Institute for International
Economics at 9 a.m. (1300 GMT)
Until now, Fed officials have said they do not see a need to
cut interest rates below zero and some market players expect
Powell to stick to that script.
"But what's worrying is that Trump is now talking about
them. Looking at past examples, the Fed has eventually done what
Trump wanted quite often," said Hiroyuki Ueno, senior strategist
at Sumitomo Mitsui Trust Asset Management.
Elsewhere, the New Zealand dollar NZD=D3 slumped 1% to
$0.6014 against the U.S. dollar after the central bank expanded
asset purchase to NZ$60 billion from NZ$33 billion while its
policy minutes said that negative interest rates are a future
option. The British pound firmed 0.3% to $1.2288 GBP=D4 as bond
yields fell after data showed that Britain's economy contracted
by a record 5.8% in March even though consumption dropped less
than feared by some market participants.