* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, July 2 (Reuters) - The dollar edged lower on Tuesday
as optimism from a weekend trade truce between the United States
and China faded, while the Aussie gained after the central bank
cut interest rates as expected but signaled a more balanced
outlook.
Risky assets struggled to gain momentum after Monday's
relief rally with weak manufacturing surveys pointing to global
economic headwinds.
JPMorgan's gauge of global manufacturing fell to its weakest
in almost seven years, showing contraction for the second month
in a row, while Morgan Stanley's surveys showed world
manufacturing shrinking for the first time since 2016.
"The impact of the optimism around the G20 meeting has faded
and we are near levels where we were before the meeting," said
Kamal Sharma, director of G10 FX strategy at Bank of America
Merill Lynch in London.
Against a basket of its rivals .DXY , the dollar was 0.1%
lower at 96.75 and not far from a three-month low of 95.84 hit
last week with traders firmly of the view the Fed will cut
interest rates at least three times by the end of the year.
However, the dollar's losses were relatively tiny in
comparison with Monday's 0.6% bounce when global risky assets
rallied on relief of waning tensions between Washington and
China.
"Bigger hurdles lie ahead this week, notably ADP tomorrow
and NFP on Friday," said Kenneth Broux, a currency strategist at
Societe Generale in London, referring to jobs data later this
week.
The global investor spotlight will move to U.S. non-farm
payrolls data due on Friday, which economists expect to have
risen by 160,000 in June, compared with a 75,000 increase in
May.
EURO BOUNCES
The euro got a brief boost after a media report that
European Central Bank policymakers are in no rush to cut
interest rates at a July policy meeting.
The single currency EUR=EBS edged as much as 0.25% higher
to the day's highs at $1.1322 before retracing some of its rise
to stand 0.1% up on the day at $1.1300.
Though central bank officials are divided on the timing of
the next policy move from the central bank, market gauges of
interest rates have increased the odds of an ECB rate cut later
this month, thanks to a global drop in bond yields.
With volatility subdued - for example, an index .DBCVIX
measuring broad currency moves is near a record low - and
central banks in easing mode, markets are ultra sensitive to any
slight tweak in policy settings.
The Australian dollar was the sole spot of strength in the
global currency markets as it AUD=D3 bounced 0.3% after a
central bank rate cut decision offered few clues about future
easing.
The central bank lowered interest rates by 25 basis points
to a record low of 1.00%, matching economists' expectations. It
said it would lower rates again "if needed", a phrase some
analysts took to mean an additional rate cut was less likely
than previously thought.
Traders attributed the currency's bounce to heavy short
positions built up in the Aussie ahead of the decision. Latest
positioning data showed short bets at a six-month high.
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euro positions https://tmsnrt.rs/2YvsSDm
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