* Strong data last week support dollar
* Euro struggles near $1.12
* Sterling heads towards January low
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds new quote, graphic)
By Tommy Wilkes
LONDON, June 17 (Reuters) - The U.S. dollar rose to a
two-week high on Monday as strong economic data led investors to
think again about how dovish the Federal Reserve is likely to
sound at this week's meeting.
Broader currency markets were quiet, as traders hesitated to
put on large positions before the Fed's two-day meeting, a
meeting of European Central Bank policymakers in Portugal and
the Bank of England's interest rate decision on Thursday.
Strong U.S. retail sales on Friday reduced the already-low
chances of a rate cut this week and lifted the dollar, although
Fed Chairman Jerome Powell may lay the groundwork for a rate cut
later this year.
Expectations of a rate cut at the Fed's June 18-19 meeting
have fallen to a probability of around 20%. But bets for
monetary easing at its July meeting remain high, with money
markets pricing in 24 basis points of cuts from current rates.
Investors are scaling back their dollar long positions,
according to CFTC data published last week. But analysts are not convinced the euro can seize on dollar
weakness to move higher.
"We are still quite confident that new lows in the EUR, GBP
and the RMB (Chinese renminbi) vs the USD will be observed
before the current cycle is over. The fact that USD shorts were
being trimmed heading into a more `dovish' Fed and a bout of USD
weakness is astounding, in our view," said Stephen Gallo,
European head of FX strategy at BMO Capital Markets.
The dollar index, which measures it against a basket of
currencies, hit a two-week high of 97.603 .DXY , up marginally
on the day.
The euro was little changed at $1.1213 EUR=EBS , as
investors awaited policymakers speeches at the ECB meeting in
Sintra in Portugal and Tuesday's euro zone inflation data.
Fears that a protracted Sino-U.S. standoff could tip the
global economy into recession have prompted rate cuts in India,
Philippines, Malaysia, New Zealand and Australia. The ECB has
also signalled the prospect of more stimulus.
Analysts say the path for rate cuts will depend on
U.S.-China talks to resolve a conflict over trade.
"Markets are pricing a high probability of a July (Federal
Reserve) cut, despite there being unusually high uncertainty,
particularly around trade. We find it hard to believe that the
Fed would cut rates if post-G20, for example, there were a
de-escalation of tensions with China (eg simply a resumption of
talks)," said RBC strategist Elsa Lignos.
The dollar was up 0.5 versus the Japanese currency to 108.63
yen JPY= .
Sterling slid as low as $1.2573 GBP=D3 , its weakest since
January and heading for a 2019 low. Investors worry Boris
Johnson, the frontrunner to replace Prime Minister Theresa May,
could put Britain on a path towards a no-deal Brexit.
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Euro vs U.S. dollar https://tmsnrt.rs/2IljNXW
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(Editing by Larry King)