FOREX-Dollar on defensive, eyes on Powell amid negative rates debate

* Dollar on defensive as negative rates debate heats up
* Fed's Powell to speak at 1300 GMT
* Sterling near 5-wk low as Covid-19 hits Britain hard
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, May 13 (Reuters) - The dollar was on the defensive
against its rivals on Wednesday as traders looked to Federal
Reserve Chairman Jerome Powell's speech amid rising speculation
the United States could one day adopt negative interest rates.
Risk-sensitive currencies lacked momentum as a warning from
a top U.S. health official about the dangers of reopening the
economy too soon served as a reminder of the uncertainties
facing an economy which has been ravaged by the novel
coronavirus.
The dollar traded at 107.15 yen JPY= , having slipped from
Tuesday's peak of 107.76, its highest since April 24.
The euro changed hands at $1.0848 EUR= after having gained
about 0.4% in the previous session.
U.S. President Donald Trump on Tuesday again pushed the
Federal Reserve to adopt negative interest rates, a hot topic in
financial markets since last week when U.S. money market
instruments started to price in a chance of negative rates.
U.S. consumer prices dropped 0.8% in April, the biggest
since the Great Recession, raising the spectre of deflation as
the economy sinks deeper into recession and fuelling the debate
about policy responses. "I would advise against negative rates. Japan has done that
but the perception here is that it wasn't so good," said
Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust
Asset Management.
"But what's worrying is that Trump is now talking about
them. Looking at past examples, the Fed has eventually done what
Trump wanted quite often."
Powell will be speaking on current economic issues in a
webcast hosted by the Peterson Institute for International
Economics at 9:00 a.m. (1300 GMT).
Although Fed officials have said they do not see a need to
cut interest rates below zero - investors think that will become
an option especially if the coronavirus outbreak leads to
further deterioration in the U.S. economy.
Top U.S. infectious disease advisor Anthony Fauci on Tuesday
warned Congress that a premature lifting of lockdowns could lead
to additional outbreaks of the deadly coronavirus. His comments cast a shadow on optimism in financial markets
in recent weeks that the worst period of the epidemic is over
and the economy can only get better.
U.S. stock prices also slid, led by high-flying technology
shares, adding to the cautious mood on the economic outlook.
That put a brake on a rally in risk-sensitive currencies
such as the Australian dollar.
The Australian currency AUD=D3 stepped back to $0.6473
from Monday's one-week high of $0.6562.
It took an additional hit on Tuesday after China banned some
Australian meat imports, though it trimmed losses later as
Australia's trade minister played down the issue as a
technicality. The New Zealand dollar stood at $0.6082 NZD=D4 , down so
far in the week but inside its recent trading range ahead of a
policy announcement from the country's central bank later in the
day.
The Reserve Bank of New Zealand is expected to keep interest
rates on hold at 0.25% while expanding its quantitative easing
programme. The British pound stood near its lowest levels in five weeks
at $1.2264 GBP=D4 , pummelled also by continued confusion over
government plans to ease lockdown measures, the worst COVID-19
death toll in Europe and revived Brexit risks.
Official data published on Tuesday showed Britain's death
toll from COVID-19 topped 38,000 as of early May, having
overtaken Italy as the worst affected country in Europe.