FOREX-Dollar slips, rate cut bets ease ahead of Fed meeting

(Recasts; adds analyst quotes; updates prices; changes
dateline, previously LONDON)
By Kate Duguid
NEW YORK, June 17 (Reuters) - The U.S. dollar was modestly
lower on Monday on weak economic data, but remained near the
two-week high set earlier in the session as investors
reconsidered how dovish the Federal Reserve is likely to be at
this week's policy meeting.
Broader currency markets were quiet, as traders hesitated to
put on large positions before the Fed's two-day meeting, a
meeting of European Central Bank policymakers in Portugal and
the Bank of England's interest rate decision on Thursday.
"It wouldn't surprise us to see a bit of volatility going
into these meeting but ultimately you're going to see people
taking more of a wait-and see approach," said Charles Tomes,
portfolio manager at Manulife Asset Management.
The New York Federal Reserve said on Monday its gauge of
business growth in New York state posted a record fall this
month to its weakest level in more than 2-1/2 years, suggesting
an abrupt contraction in regional activity. The weak data did
not change the low expectations the Fed will cut rates at its
meeting this week. Expectations of a rate cut at the Fed's June 18-19 meeting
have fallen to a probability of 19.2%, according to CME Group's
FedWatch tool. But bets for monetary easing at its July meeting
remain elevated, with markets pricing in a 70.1% chance of a 25
basis point cut.
Slow jobs growth in May, dovish comments from Federal Open
Market Committee members and a slate of weak inflation data last
week pushed rate-hike expectations up.
"It's probably warranted that you need somewhat of a rate
cut priced in. We think the pendulum has swung a little too far,
too fast in the short term where the market has gotten ahead of
itself pricing in cuts," said Tomes.
The dollar index hit a two-week high of 97.603 .DXY on
Monday but was last 0.17% lower at 97.407. The euro was 0.28%
higher at $1.124 EUR= as investors awaited policymakers
speeches at the European Central Bank meeting in Sintra,
Portugal, and Tuesday's euro zone inflation data.
Fears that a protracted Sino-U.S. standoff could tip the
global economy into recession have prompted rate cuts in India,
Philippines, Malaysia, New Zealand and Australia. The ECB has
also signaled the prospect of more stimulus.
Against the yen, the dollar was slightly stronger, last up
0.02% to 108.58 JPY= .
Sterling slid as low as $1.257 GBP= , its weakest since
January and heading for a 2019 low. Investors worry Boris
Johnson, the front-runner to replace Prime Minister Theresa May,
could put Britain on a path towards a no-deal Brexit.

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