FOREX-Dollar up as Powell downplays chances of negative U.S. interest rates

* Fed's Powell warns of prolonged economic weakness
* Sterling falls to 5-week low as dollar strengthens

(Updates to U.S. afternoon)
By Saqib Iqbal Ahmed
NEW YORK, May 13 (Reuters) - The U.S. dollar edged higher
against a basket of currencies on Wednesday, after Federal
Reserve Chair Jerome Powell rejected the idea of using negative
interest rates as a stimulative tool, even as he sounded a
gloomy note about economic growth.
In remarks webcast by the Peterson Institute for
International Economics, Powell said the country could face an
"extended period" of weak growth. Economic recovery may take time, depending on progress
fighting the coronavirus pandemic, he said.
The U.S. Dollar Currency Index =USD , which measures the
greenback's strength against six major currencies, was up 0.23%
on the day at 100.26. The index fell as low as 99.57 earlier in
the session.
Powell said the Fed's view on negative interest rates has
not changed and it is not something policy makers are looking
at.
"Mr. Powell's resolute downplaying of negative rates will be
music to the ears of dollar bulls who may use today's event to
bid the greenback higher," said Joe Manimbo, senior market
analyst at Western Union Business Solutions in Washington.
Traders of short-term U.S. interest-rate futures reduced
bets the Fed will take the unprecedented step of pushing
interest rates below zero. Yet futures contracts maturing in
April 2021 and later still signalled expectations for negative
rates, according to CME Group's FedWatch tool. U.S. President Donald Trump on Tuesday called for the U.S.
to "accept the gift" of negative rates - as data showed that
U.S. consumer prices dropped 0.8% in April, the largest decline
since December 2008, when the economy was in recession.
The dollar index has traded in a tight range over the past
few weeks but remains just 3% shy of a more than three-year high
hit in late March, supported by heightened demand for safe
havens as financial markets remain on edge about the economic
impact of the pandemic.
While the dollar has benefited from safe-haven flows amid
the market turmoil, the outlook remains divided, with hedge
funds holding their short bets on the currency while
institutional investors remain bullish. The stronger dollar sent the British pound to its lowest in
five weeks. The pound was last down 0.37% against the greenback.
The New Zealand dollar NZD= slid 1.6% after the country's
central bank doubled the amount of bonds it was buying and
opened the door to negative interest rates, sending long-term
bond yields to all-time lows.

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Graphic: CFTC Dollar positions https://tmsnrt.rs/3fJQyx1
Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
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