FOREX-Dollar sinks as equity market mood lifts, Fed in view

* Suga set to succeed Abe as Japan PM, focus turns to new
cabinet
* Dollar under pressure ahead of Fed policy meeting outcome
on Wed
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates throughout, updates prices, adds analyst comment)
By Sujata Rao and Ritvik Carvalho
LONDON, Sept 14 (Reuters) - The dollar slipped on Monday
against its major peers as a wave of M&A deals lifted the mood
in global equity markets and investors looked ahead to an
event-packed week which includes a Fed meeting and the
appointment of a new Japanese premier.
The UK parliament was preparing to debate a draft bill which
the government has admitted breaches the terms of its EU divorce
treat. The currency nevertheless firmed 0.6% versus the dollar
following its weakest week since March GBP=D3 .
The gain was partly down to the dollar index, which slipped
0.2% after firming for two weeks straight =USD .
This week's U.S. Federal Reserve meeting will be its first
since Chairman Jerome Powell unveiled a policy shift towards
greater tolerance of inflation, effectively pledging to keep
interest rates low for longer.
"There will be pressure on the Fed to back up the new policy
goals with some action," said MUFG strategist Lee Hardman,
noting that inflation remained well below target.
"Expectations are they could strengthen forward guidance,
possibly by saying rates will be on hold for 3-4 years," said
Hardman, who remains bearish on the greenback.
ING Bank said in a note to clients that the "soft" Fed
policy looks largely priced in following Powell's unveiling of
the new inflation targeting approach, and that more positive
news would be needed to push cyclical currencies higher and the
dollar lower.
"With fragile equity markets and risk sentiment, it is
unlikely to happen this week, in our view," the bank said.
"This suggests a range-bound dollar index this week."
Speculators trimmed net short dollar positions for the
second straight week to $32.67 billion, according to Reuters
calculations and Commodity Futures Trading Commission data.
That's off nine-year highs of $33.68 billion in late August
at Standard Chartered said there was a risk the Fed
would disappoint dollar bears.
"Having set aside yield curve control as a near-term policy
option, the FOMC does not seem to have an operational consensus
on how to use the balance sheet," they told clients. "This may
disappoint investors."
The data showed net euro longs inched higher but remained
off record highs touched a few weeks ago.
The single currency had spiked to a one-week high above
$1.191 after Thursday's European Central Bank meeting, before
easing back as policymakers talked it down the next day.
It was trading around $1.187 on Monday EUR=EBS .
The yen meanwhile rose 0.2% to around 105.92 yen JPY=D3 to
the dollar, a five-day high. The Bank of Japan's meeting on
Thursday is not expected to yield any policy changes but the
bank may be quizzed on whether it could follow the Fed's
inflation stance.
The Reuters Tankan survey on Monday found Japanese
manufacturers pessimistic for the 14th straight month in
September, underlining the challenge the country's next leader
faces after the economy sank into its deepest recession ever.
Chief Cabinet Secretary Yoshihide Suga was picked to head
Japan's ruling party on Monday, meaning that on Wednesday in
parliament he is set to be selected by his peers as prime
minister, taking over from Shinzo Abe.
Suga has vowed to continue Abe's policies. "The focus is on the line-up of his cabinet as well as
whether he will call a snap election," said Minori Uchida, chief
FX strategist at MUFG Bank. "He is saying he will continue and
advance Abenomics, but it is questionable how much advancement
he can make."

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U.S. Dollar Index & CFTC speculative currency positions https://tmsnrt.rs/2Q64Zj7
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