FOREX-Dollar near 2 1/2-month lows as bets on rate cut grow

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

By Saikat Chatterjee
LONDON, June 11 (Reuters) - The dollar held above a recent
two-and-a-half-month low on Tuesday as bets on an interest rate
cut by the Federal Reserve increased, although investors were
wary of selling aggressively before a Group of 20 summit this
month.
Markets are only pricing in about a 20% chance of a rate cut
in June, but they are pricing in about 100% chance of a cut by
July. A policy meeting is due next week.
"Bets of U.S. rate cuts have been rising quickly in recent
days and we think the pricing has become too aggressive so the
dollar's downside is limited," said Manuel Oliveri, a currency
strategist at Credit Agricole in London.
Against a basket of other currencies .DXY , the dollar was
steady at 96.80, near a late March low of 96.46. It has fallen
1% so far this month.
Recent dovish comments from Fed officials and weak economic
data have bolstered expectations for rate cuts. But markets are
also looking to a G20 meeting in Osaka, Japan, on June 28-29.
U.S. President Donald Trump said on Monday he was ready to
impose more tariffs if talks at the summit with China's
president, Xi Jinping, make no progress. "It might not happen if the Chinese side thinks there isn't
any point in having a meeting if the opinions are far apart from
the start," said Yukio Ishizuki, senior currency strategist at
Daiwa Securities.
"Trump has been applying pressure by emphasising there will
surely be a meeting, but it isn't clear what the Chinese side
will do."
Elsewhere, the pound was lower as a leadership contest for
the ruling Conservative Party got underway this week. The euro
edged to a five-month high against the pound EURGBP=D3 to
89.32 pence before British employment data.
Recent data, particularly manufacturing figures, have been
weak, fuelling expectations that the next move from the Bank of
England will be a rate cut. Policymakers, however, have adopted
an unexpectedly hawkish stance.
The Bank of England will probably need to raise interest
rates sooner than financial markets expect, policymaker Michael
Saunders said on Monday.