FOREX-Dollar on back foot after Fed shores up bets on large rate cut

* Williams says Fed should take pre-emptive measures
* Dollar blips up after NY Fed says Williams comments
academic
* Emerging market currencies at 4-month high,
* Sterling jumps back but still worst performer this week
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Hideyuki Sano
TOKYO, July 19 (Reuters) - The dollar steadied on Friday but
was still on the defensive after Federal Reserve officials
bolstered expectations of an aggressive rate cut this month to
address weakening price pressures.
At a central banking conference on Thursday, New York Fed
President John Williams argued for pre-emptive measures to avoid
having to deal with too low inflation and interest rates.
That sent the dollar down before it bounced slightly in
early Asian trade, after a New York Fed representative
subsequently said Williams' comments were academic and not about
immediate policy direction.
Still, investors took his remarks along with separate
comments from Fed Vice Chair Richard Clarida as another dovish
signal from the central bank, which could be opening the way for
a big rate cut at the end of this month.
The dollar stood at 107.42 yen JPY= , up 0.2% from late
U.S. levels after having hit a three-week low of 107.21 the
previous day.
The euro eased slightly to $1.1266 EUR= from $1.1282. On
the week, the dollar is down 0.4% versus the yen and 0.1% on the
euro.
The dollar index =USD , which hit a two-week low of 96.648,
bounced to 96.792.
The greenback fell broadly on Thursday after Williams'
remarks bolstered bets that the Fed would cut interest rates by
50 basis points, rather than 25 basis points.
Williams said when rates and inflation are low, policymakers
cannot afford to keep their "powder dry" and wait for potential
economic problems to materialise.
That is especially true with neutral rates that would
neither restrict nor accelerate the U.S. economy, he said. When
adjusted for inflation, the neutral rate is near the Fed's
current policy rate, which is in a range of 2.25-2.50%.
Financial markets reacted quickly, with money market futures
FF#: pricing in almost a 70% chance of a 50 basis point cut at
its policy meeting on July 30-31 at one point.
The odds eased to around 40% after the New York Fed's
clarification of his speech. All the same, Williams' rate-cut view was echoed by Fed Vice
Chair Clarida, who told Fox Business Network the central bank
might have to act early and not wait "until things get so bad".
"Williams' comments were surprisingly dovish. The NY Fed
went all the way to try to modify the message but no one seems
to have done so for Clarida, who also said a very similar
thing," said Daisuke Uno, chief strategist at Sumitomo Mitsui
Bank.
The dollar's weakness also underpinned many emerging market
currencies.
MSCI's emerging market currency index .MIEM00000CUS has
risen 0.35% so far this week to a four-month high of 1,657.07,
coming within sight of this year's double peak around 1,658, hit
in late January and March.
The Brazilian real BRL= rose to five-month high of 3.7172
to the dollar on Thursday while the South African rand ZAR=D4
also scaled a five-month peak of 13.8175 and last stood at
13.855.
"If the Fed cut rates, that could encourage fresh
investments in emerging currencies and other risk assets," said
Bart Wakabayashi, State Street Bank's representative in Japan.
Elsewhere, the pound remained firm following
stronger-than-expected UK retail sales numbers and after British
lawmakers on Thursday approved proposals to make it harder for
the next prime minister to force through a no-deal Brexit by
suspending parliament. The pound stood at $1.2552 GBP=D3 , flat in Asia after
0.93% gains overnight, though it was the worst performer among
G10 currencies so far this week, with a loss of 0.2%.
The biggest stride was made by the New Zealand dollar, which
is up 1.3% for the week at a 3-1/2-month high of $0.6785
NZD=D4 , as the Fed's anticipated monetary easing is seen
boosting the relative yield attraction of the kiwi.
The currency has the second highest bond yield among G10
currencies after the U.S. dollar.