* Euro storms past $1.17 amid doubts over U.S. recovery
* Sterling hits highest since March, AUD, NZD test recent
peaks
* Yen firm and franc at 5-yr high as Sino-U.S. tensions
drive bids
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Tom Westbrook
SINGAPORE, July 27 (Reuters) - The dollar crumbled on Monday
as cracks in the U.S. economic recovery drove investors away
from the world's reserve currency as they increased bets the
Federal Reserve could flag another accommodative shift in its
outlook this week.
The greenback fell to a four-month low against the yen, a
new 22-month trough on the euro and a five-year low against the
Swiss franc, while gold minted a record high. MKTS/GLOB
The Fed meets Tuesday and Wednesday after labour data last
week showed the U.S. employment recovery wobbling. No major
announcements are anticipated but analysts expect policymakers
may begin laying the groundwork for more action in September or
the fourth quarter. The U.S. central bank could firm recent hints about the
benefits of an average inflation target, which would allow rates
to stay lower for longer.
"I think we're seeing the U.S. dollar adjusting to that,"
said Chris Weston, head of research at Melbourne brokerage
Pepperstone.
"If they are to ever get inflation...then the reaction is to
allow the economy to run hot for a large period of time," he
said. "So the chance of the Fed raising in the next five years
is being repriced in the U.S. dollar -- there's a momentum trade
as people run this short position into the Fed meeting."
The value of short dollar positions hit its highest in two
years last week 0#NETUSDFX= , while the futures market is
pricing negative rates in the U.S. next August and no upward
movement in the next three years 0#FF . The euro rose 0.5% to $1.1725 and the Antipodean currencies
gained by the same margin, while sterling GBP= and the
Singapore dollar SGD= both hit four-and-a-half month highs.
The pound was last at $1.2842, the Aussie AUD=D3 sat at
$0.7134 and the kiwi NZD=D3 at $0.6675, a fraction below its
highest since January.
PASS THE STIMULUS
Market sentiment is being clouded by concerns over the
global recovery as coronavirus cases spike and geopolitical
tensions worsen.
None of the majors made much headway on the yen and the
yuan, a barometer of Sino-U.S. relations, struggled to
capitalise on the dollar's weakness. It stayed on the weaker
side of 7-per-dollar at 7.0021 in offshore trade CNH= . CNY/
China said it had taken over the premises of the U.S.
consulate in Chengdu on Monday after ordering the facility shut
in retaliation for being ousted from its consulate in Houston.
Elsewhere, investors are also beginning to fret about U.S.
political deadlock over the next round of fiscal stimulus with a
month-end deadline looming to extend some unemployment benefits.
The White House and Senate Republicans agreed on a $1
trillion relief package, but that must be negotiated with
Democrats who have been pushing for bigger spending.
Last week a recovery in the U.S. job market unexpectedly
stalled, while purchasing manager surveys showed Europe's
recovery pulling ahead - adding to nerves about any letup in
U.S. stimulus.
"Failure to pass additional fiscal measures or a minimalist
bill will likely generate a significant shock to markets," said
Steve Englander, head of G10 FX research at Standard Chartered
in New York.
"We expect a big stimulus package that probably will reflect
Democratic priorities on income support and spending."
(Editing by Jacqueline Wong)