FOREX-Dollar near 2-week high before Fed as dovish ECB supports

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Euro sags after ECB Draghi says will ease if necessary
* Aussie, yuan lifted as U.S., China rekindle trade talks

By Shinichi Saoshiro
TOKYO, June 19 (Reuters) - The dollar held near a two-week
high early on Wednesday ahead of the Federal Reserve's
closely-watched policy decision later in the day, supported by a
surprisingly dovish European Central Bank and bearish eurozone
economic data.
The dollar index .DXY versus a basket of six major
currencies was steady at 97.615 after climbing to 97.766 on
Tuesday, its highest level since June 3.
Focus was on whether the greenback can retain its strength
after the Fed's two-day policy meeting ends later on Wednesday.
The Fed is widely expected to stand pat on monetary policy
this time but open the door for an interest rate cut at the next
meeting in July.
"The market has mostly priced in a July rate cut and unless
there is a big dovish surprise at the FOMC (Federal Open Market
Committee) meeting it is hard to imagine the dollar coming under
downward pressure," said Takuya Kanda, general manager at
Gaitame.Com Research Institute.
"But there will be a lot to digest at this FOMC, such as the
Fed's views on the economy and prices and Chair (Jerome)
Powell's comments. It is hard to tell which of these factors the
market decides to latch on and react to."
The prospect of the U.S. central bank lowering rates has
also driven benchmark Treasury yields to near two-year lows
while boosting equity prices.
The euro was steady at $1.1198 EUR= after shedding 0.2%
overnight, when it brushed a 15-day trough of $1.1181.
The common currency dropped along with a decline in German
government bond yields, which hit a new record low on Tuesday,
after ECB chief Mario Draghi said the bank will need to ease
policy again if inflation doesn't head back to its target.
A closely watched survey by the ZEW Institute showing that
the mood among German investors had deteriorated sharply in June
also weighed on the euro.
The Australian dollar AUD=D4 was a shade higher at $0.6884
after mounting a rebound the previous day, when it pulled away
from a 5-1/2-month low of $0.6832 set on growing expectations
that the Reserve Bank of Australia may have to cut rates again.
The Aussie, along with the Chinese yuan, got a lift on
Tuesday as China and the United States rekindled trade talks
ahead of a meeting next week between Presidents Donald Trump and
Xi Jinping. The Chinese yuan CNH=D4 extended overnight gains in
offshore trade to reach 6.8953 per dollar, its strongest since
May 14.
The dollar gained 0.1% to 108.555 yen JPY= after losing
modest ground overnight.

(Editing by Shri Navaratnam)