* Investors brace for dovish Fed at Jackson Hole
* U.S. yield curve steeper, but may invert again
* Pound plunges vs euro, dollar
* Euro flat as markets focus on Italy
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds news on Italian prime minister's resignation, new analyst comments, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 20 (Reuters) - The dollar traded lower on Tuesday, in line with the drop in Treasury
yields, as investors braced for a potentially dovish Federal Reserve at a Jackson Hole, Wyoming, gathering
later this week, with many expecting an announcement of some measure that would ease U.S. recession
concerns.
"Market expectations for Jackson Hole and the central banking community in aggregate are extremely
dovish," said Brad Bechtel, managing director at Jefferies in New York. "The U.S. market is pricing a
tremendous amount of easing now, along with many other markets around the world."
Risk aversion crept into the market, a day after investors cheered the prospect of new stimulus
measures from global central banks to shore up their struggling economies.
Markets also cautiously awaited Fed Chairman Jerome Powell's speech on Friday in Jackson Hole.
"We think a long yen exposure makes sense ahead of the Fed's Jackson Hole event," said Scotiabank in a
research note."If Fed Chairman Powell sounds dovish, U.S. yields and the U.S. dollar should fall; if he
sounds more hawkish, safe havens should rally."
That said, market sentiment was not as distressing as that of last week, when the U.S. bond yield
curve inverted, a sign that many investors say presages a recession.
The curve of 2-year and 10-year Treasury yields, however, remained steeper on Tuesday US2US10=RR ,
but could invert again based on past cycles. In midday trading, the dollar fell 0.3% against the yen to 106.34 yen JPY= and was down 0.3% versus
the Swiss franc at 0.9792 franc CHF= .
The dollar index was down 0.1% at 98.255 .DXY after earlier rising to a 2-1/2-week high of 98.40. It
reached its 2019 high of 98.932 at the beginning of the month.
The euro rose 0.2% against the dollar to $1.1093 EUR= after Italy's prime minister announced his
resignation on Tuesday even as he made a blistering attack on his own interior minister, Matteo Salvini,
accusing him of sinking the ruling coalition and endangering the economy for personal and political gain.
George Vessey, market analyst, at Western Union Business Solutions, said growing economic and
political risk in the euro zone have added to the euro's downside risks, leaving it vulnerable to hitting
new lows for the year. In early August, the euro had fallen to nearly two-year troughs.
Elsewhere, the pound was down 0.1% both against the dollar and the euro, last at $1.2088 GBP=D3 and
at 91.25 pence against the euro EURGBP=D3 .
British Prime Minister Boris Johnson made new waves by writing to European Council President Donald
Tusk on Monday to propose replacing the Irish border backstop with a commitment to put in place
alternative arrangements by the end of a post-Brexit transition period. Currency bid prices at 12:21PM (1621 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar EUR= $1.1094 $1.1076 +0.16% -3.27% +1.1096 +1.1067
Dollar/Yen JPY= 106.3400 106.6200 -0.26% -3.56% +106.6800 +106.1900
Euro/Yen EURJPY= 117.98 118.11 -0.11% -6.53% +118.2600 +117.5900
Dollar/Swiss CHF= 0.9787 0.9814 -0.28% -0.28% +0.9818 +0.9787
Sterling/Dollar GBP= 1.2157 1.2125 +0.26% -4.70% +1.2181 +1.2065
Dollar/Canadian CAD= 1.3324 1.3323 +0.01% -2.30% +1.3344 +1.3308
Australian/Doll AUD= 0.6778 0.6762 +0.24% -3.84% +0.6795 +0.6755
ar
Euro/Swiss EURCHF= 1.0858 1.0875 -0.16% -3.52% +1.0881 +1.0846
Euro/Sterling EURGBP= 0.9125 0.9133 -0.09% +1.57% +0.9183 +0.9103
NZ NZD= 0.6415 0.6409 +0.09% -4.50% +0.6429 +0.6404
Dollar/Dollar
Dollar/Norway NOK= 8.9955 8.9755 +0.22% +4.13% +9.0212 +8.9701
Euro/Norway EURNOK= 9.9803 9.9465 +0.34% +0.75% +9.9941 +9.9420
Dollar/Sweden SEK= 9.6936 9.6849 +0.26% +8.14% +9.7328 +9.6776
Euro/Sweden EURSEK= 10.7578 10.7297 +0.26% +4.81% +10.7791 +10.7230
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DXY index rises towards 2019 high https://tmsnrt.rs/2Njp8SE
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