FOREX-Dollar hovers near 7-week low on Fed rate cut prospect

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

By Daniel Leussink
TOKYO, June 5 (Reuters) - The dollar struggled near
seven-week lows on Wednesday after U.S. central bank officials
hinted at the possibility of an interest rate cut in the face of
rising risks to trade and global growth.
Federal Reserve Chairman Jerome Powell dropped his standard
reference to the Fed being "patient" in approaching any rate
decision on Tuesday, saying instead the central bank will
respond as "as appropriate" to trade
pressure. The dollar index against a basket of six peers was last flat
at 97.077 .DXY , within reach of a recent low of 96.995 brushed
overnight - its lowest since April 18. It has now fallen 1.3%
from a more than two-year high of 98.371 touched on May 23.
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities, said major currencies barely reacted to Powell's
comments as investors had already priced in several rate cuts by
the Fed on the back of the shifting global growth outlook.
The Fed chairman's comments came a day after St. Louis
Federal Reserve President James Bullard said in a speech that a
rate cut may be needed "soon." Rate cuts by some central banks in recent weeks could
potentially signal the start of a global monetary easing cycle
to stave off a sharper economic downturn.
"Central banks across the globe are adopting a dovish tone.
It's kind of a preemptive move," said Yamamoto.
"It doesn't necessarily mean that the economy is worsening –
rather the outlook worsened. It's mainly related to the trade
tensions between the U.S. and China and the U.S. and Mexico."
Australia's central bank on Tuesday slashed benchmark cash
rates to a record low of 1.25% and signalled willingness to go
further if the worsening outlook persists. Last month, New Zealand's central bank cut its benchmark
interest rate for the first time in two-and-a-half years as it
moved to support a cooling economy and counter global
uncertainties. In South Korea, its central bank last week kept policy
settings unchanged but adopted a more accommodative tone while
India is expected to cut rates at its policy meeting on
Thursday. On Wednesday, the Australian dollar AUD=D4 rose 0.15% to
$0.7000 despite data showing growth in the Australian economy
picked up only modestly in the first quarter while the annual
pace was at its slowest in a decade.
The A$1.9 trillion ($1.3 trillion) economy expanded 0.4% in
the three months ended March, while annual GDP rose 1.8%, the
weakest since the global financial crisis. The New Zealand dollar NZD=D4 was in the spotlight after a
senior official of the Reserve Bank of New Zealand was quoted as
saying the central bank's central view was that interest rates
would remain broadly around current levels for the foreseeable
future. The kiwi was last up 0.3% at $0.6629, having brushed a
one-month low earlier in the session.
Against the yen JPY= , the dollar edged down 0.02% to
108.125 yen per dollar, within striking distance of a near
five-month high of 107.845 - its highest since Jan. 10 - hit
during the previous session.
Minori Uchida, chief currency analyst at MUFG Bank, said the
yen was likely to be supported for the time being as a U.S. rate
cut would likely signal further weakness in the global economy.
"The dollar will lose some of its strength if interest rates
will actually be cut in the United States," said Uchida.
"Japanese interest rates are already at such a low level
that they are unlikely to be cut any further. Rate differentials
are likely to get smaller if other countries conduct monetary
easing," he said.
The euro EUR= was up 0.1% at $1.1260, extending its gains
to a fourth session.

(Editing by Shri Navaratnam and Jacqueline Wong)