* U.S. dollar neutral as investors eye Fed meet next wk
* Sterling turns positive and surges to six-weeks high
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds quotes, chart, updates prices)
By Olga Cotaga
LONDON, Sept 9 (Reuters) - The euro stayed on the back foot
on Monday, having dropped to a five-day low against the dollar
overnight, as investors remained convinced the European Central
Bank will introduce a new wave of monetary stimulus at its
meeting on Thursday.
Leveraged funds have increased their net short positions on
the euro, expecting the ECB to cut interest rates, announce it
will buy government bonds or other European assets, or both.
Other global central banks are already loosening monetary
policy, including the People's Bank of China which on Friday cut
the amount of cash that banks must hold as reserves.
"ECB watchers are confident there could be a 20 bps cut and
so the potential surprise (for the euro) on the rate cut isn't
that big," said Esther Maria Reichelt, a Commerzbank analyst.
"It's far more difficult to assess what kind of
unconventional measures" the ECB could use to stimulate the euro
zone economy, which "could have a far bigger impact on the
euro," Reichelt said.
Money markets are pricing in a 72% chance the ECB will cut
rates by 20 basis points on Thursday, a slightly lower level of
certainty than last week. Some analysts suggest the ECB will
start buying euro zone equities, not just government bonds, in a
new wave of quantitative easing.
By 1040 GMT, the euro was steady against the dollar at
$1.10335. It slipped to $1.10155 overnight, its weakest since
Sept. 4. EUR=EBS
Hedge funds have added more short euro positions, taking the
amount of contracts to $6.74 billion in the week to Sept. 3, the
highest in a month, though positions were not as big as in
April. EURNETUSD=
"The default is to be negative euro into ECB," said Kenneth
Broux, head of corporate research at Societe Generale.
"Resuming bond purchases won't do anything" to the euro zone
economy because "the monetary policy in Europe has stopped being
effective," Broux said. "The ECB has done all it can."
The dollar index, which tracks the U.S. currency against six
other currencies .DXY , was flat at 98.33. The dollar was also
confined to a narrow range against the yen as traders weighed
the prospect of U.S. rate cuts against their demand for
safe-haven assets. Dollar/yen was last up 0.1% at 107.02
JPY=EBS .
The Federal Reserve will continue to act "as appropriate" to
sustain the U.S. economic expansion, Fed Chair Jerome Powell
said Friday in Zurich, bolstering expectations for a rate cut at
the Fed's meeting on Sept. 18. Elsewhere, sterling turned positive to reach a six-week high
of $1.2385 GBP=D3 after better-than-expected British economic
data and because some banks have revised down their no-deal
Brexit expectations.
Traders waited to see whether the British parliament would
vote to hold an early general election before the Oct. 31 Brexit
deadline. If a snap election were held and the Conservative
Party won, it could scrap recent legislation to extend Britain's
exit from the European Union for a third time.
Against the euro, sterling was up 0.6% at 89.17, having hit
earlier a six-week high of 90.13. EURGBP=D3
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Hedge funds' latest net short positions on the euro https://tmsnrt.rs/3181NHI
CFTC weekly data https://tmsnrt.rs/315aQcw
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