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FOREX-Dollar slips, rate cut bets ease ahead of Fed meeting


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(Recasts; adds analyst quotes; updates prices; changesdateline, previously LONDON)

By Kate Duguid

NEW YORK, June 17 (Reuters) - The U.S. dollar was modestlylower on Monday on weak economic data, but remained near thetwo-week high set earlier in the session as investorsreconsidered how dovish the Federal Reserve is likely to be atthis week's policy meeting.

Broader currency markets were quiet, as traders hesitated toput on large positions before the Fed's two-day meeting, ameeting of European Central Bank policymakers in Portugal andthe Bank of England's interest rate decision on Thursday.

"It wouldn't surprise us to see a bit of volatility goinginto these meeting but ultimately you're going to see peopletaking more of a wait-and see approach," said Charles Tomes,portfolio manager at Manulife Asset Management.

The New York Federal Reserve said on Monday its gauge ofbusiness growth in New York state posted a record fall thismonth to its weakest level in more than 2-1/2 years, suggestingan abrupt contraction in regional activity. The weak data didnot change the low expectations the Fed will cut rates at itsmeeting this week. urn:newsml:reuters.com:*:nL8N23O2MB

Expectations of a rate cut at the Fed's June 18-19 meetinghave fallen to a probability of 19.2%, according to CME Group'sFedWatch tool. But bets for monetary easing at its July meetingremain elevated, with markets pricing in a 70.1% chance of a 25basis point cut.

Slow jobs growth in May, dovish comments from Federal OpenMarket Committee members and a slate of weak inflation data lastweek pushed rate-hike expectations up.

"It's probably warranted that you need somewhat of a ratecut priced in. We think the pendulum has swung a little too far,too fast in the short term where the market has gotten ahead ofitself pricing in cuts," said Tomes.

The dollar index hit a two-week high of 97.603 .DXY onMonday but was last 0.17% lower at 97.407. The euro was 0.28%higher at $1.124EUR= as investors awaited policymakersspeeches at the European Central Bank meeting in Sintra,Portugal, and Tuesday's euro zone inflation data.

Fears that a protracted Sino-U.S. standoff could tip theglobal economy into recession have prompted rate cuts in India,Philippines, Malaysia, New Zealand and Australia. The ECB hasalso signaled the prospect of more stimulus.

Against the yen, the dollar was slightly stronger, last up0.02% to 108.58 JPY= .

Sterling slid as low as $1.257GBP= , its weakest sinceJanuary and heading for a 2019 low. Investors worry BorisJohnson, the front-runner to replace Prime Minister Theresa May,could put Britain on a path towards a no-deal Brexit.

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(Reporting by Kate Duguid and Tommy WilkesEditing by Nick Zieminski) ((kate.duguid@thomsonreuters.com; +646-223-6118; ReutersMessaging: kate.duguid@thomsonreuters.com@thomsonreuters.net))






This article appears in: Politics , Stocks , World Markets , Economy
Referenced Symbols: EFX ,



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