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Dollar reaches two-week high as investors prepare for Fed meeting By Reuters



© Reuters. FILE PHOTO: U.S. dollar notes are listed at a currency exchange booth in karachi

By Tommy Wilkes

LONDON (Reuters) – The U.S. dollar rose to a two-week high on Monday after strong economic data last week led to investors at the Federal Reserve will sound as expected as this week's monetary policy meeting.

Broader currency markets were quiet, as traders hesitated to put on large positions before the Fed meeting, a meeting of European Central Bank policy makers in Portugal and the Bank of England's interest rate decision on Thursday.

Strong US retail sales on Friday reduced the rates at a rate cut this week and lifted the dollar, although Fed Chairman Jerome Powell is expected to leave open the possibility of future rate cuts.

Positioning data point to a scaling back of investors' dollar long positions, although only to levels seen in March.

Expectations of a rate cut at the Fed's June 1

8-19 meeting fell from 28.3% on Thursday to 21.7% after the retail data, according to CME Group's FedWatch tool. However, bets for monetary easing at the July meeting remain at 85%.

Analysts see plenty of hurdles for the euro, too.

"What should be a softer dollar environment this summer, there are plenty of things (ECB easing, trade wars, Italy & Brexit to name a few) to prevent breaking out of a $ 1.10- $ 1.15 range this year, "ING analysts said in a note.

It was unchanged that 97,569, near a two-week high reached earlier in the session. The euro was little changed at $ 1,1209.

Fears a protracted Sino-U.S. standoff could tip the global economy into recession have prompted rate cuts in India, Philippines, Malaysia, New Zealand and Australia.

The ECB also has raised the prospect of more stimulus, and the Bank of Japan is widely expected to reinforce its commitment to maintain its stimulus for a while yet.

Although markets are pricing in a Fed rate cut in July, analysts say much will depend on US-China talks to resolve a conflict over trade.

"Markets are pricing a high probability of a July cut, despite there being unusually high uncertainty, particularly around trade, we find it hard to believe that the Fed would cut rates if post-G20, for example, there were de-escalation of tensions with China (eg simply a resumption of talks), "said RBC strategist Elsa Lignos.

The dollar was flat at 108.60 yen after edging up 0.15% on Friday

Sterling slid further towards a 2019 low, touching $ 1.2575, its weakest since January. Investors worry Boris Johnson, the frontrunner to replace Prime Minister Theresa May, could put Britain on a path towards a no-deal Brexit.

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