* No let up in pressure on dollar
* Aussie, Kiwi test multimonth peaks, yen firm on safe-haven
demand
* Fed and U.S. fiscal package in focus
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Tom Westbrook
SINGAPORE, July 28 (Reuters) - The dollar nursed losses on
Tuesday, after slumping to a two-year low, as investors worry
about the damage from the coronavirus to the U.S. economy and
await the latest outlook from the Federal Reserve and the
passage of a new fiscal rescue package.
The U.S. currency's drop has put a rocket under gold prices
and has the yen standing near its highest in four months, the
euro just below a 22-month high and the kiwi close to its
strongest since January.
While the moves were modest, they kept pressure on the
greenback ahead of the two-day Federal Reserve meeting that gets
underway later Tuesday as speculation mounts about a possible
shift in policy emphasis - even if no policy change is expected.
"Officials at the Fed have started talking regularly
about...allowing inflation to rise above target a bit before
tightening," said Capital Economics' market economist Oliver
Jones.
At the same time the euro's rise has been unstoppable since
European leaders struck a deal for a common debt pool to fund
recovery spending in the worst-hit countries.
"With all of this in mind, we would not be surprised to see
the dollar fall further," Jones said, since greater tolerance
for inflation leaves room for more pressure on U.S. real yields
- diminishing a key attraction of holding dollars.
The Australian dollar AUD=D3 was last up 0.2% at $0.7160,
close to a 15-month top of $0.7184 hit last week.
The yen JPY= edged ahead to 105.25 per dollar and the euro
EUR=EBS tacked on 0.1% to $1.1766. The New Zealand dollar
NZD=D3 was steady at $0.6685 and sterling GBP= inched ahead
to a new four-month peak of $1.2925.
SLIDE AWAY
Pressure on the greenback has been relentless since the end
of May, as faith in a global economic recovery from the pandemic
has grown stronger and other currencies have rallied.
But it has intensified in the wake of the EU fiscal deal,
and as the coronavirus' spread in the U.S. casts doubt on its
own economic recovery.
While the rate of new U.S. case numbers is showing signs of
slowing down, the unchecked spread of the virus also seems to be
denting economic recovery and a rebound in hiring has stalled.
Against a basket of currencies =USD .DXY the dollar is
tracking toward its worst month in nearly a decade, shedding
3.9% in July. It has lost nearly 7% since mid May. Short dollar
positions are at their highest in two years. NETUSDALL=
That has led some to entertain the prospect of an imminent
dollar rebound. One warning sign has come from the Chinese yuan
CNH= , which has struggled to capitalise on the dollar's
weakness amid heightened Sino-U.S. tensions.
A big U.S. fiscal package - currently deadlocked in
negotiations between Democrats, who have made a $3 trillion
proposal, and Republicans who have tabled a more modest $1
trillion plan - could also boost the dollar.
As could the Fed, if it does not sound so dovish or if
markets "sell the fact" after the meeting.
"Investors have already priced in significant Fed easing for
a long time, so we are not sure where the dovish surprise will
come from," said Steve Englander, head of global G10 FX research
at Standard Chartered in New York.
"Over the last eight years, core (inflation) has hit 2% only
six out of 96 months and has been above 2.1% only once," he
said.
"What makes any new tools or new framework so much more
powerful?"