FOREX-Euro hits 2-month low as markets wait to gauge ECB's policy stance

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* Euro on defensive as market braces for dovish ECB

* Dollar index hits 5-wk high as risk aversion ebbs, liftsyields

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

TOKYO, July 24 (Reuters) - The euro slipped to a two-monthlow on Wednesday, as markets waited to gauge the EuropeanCentral Bank's stance on policy amid bubbling expectations thatit could eventually lower interest rates and join the globaleasing trend.

The common currency EUR= was little changed at $1.1147after touching $1.1144, its lowest since May 31. It had alreadylost more than 0.5% the previous day.

The ECB holds a policy meeting on Thursday. Marketexpectations for the central bank to cut rates by 10 basispoints have ebbed somewhat, but the central bank is still hopedto provide dovish guidance, paving the way for easing inSeptember. urn:newsml:reuters.com:*:nL8N24I1WL

"Attempts within the currency market to price in dovishmoves or language by the ECB have gathered pace over the lastfew days, leading to the euro's steep decline," said YukioIshizuki, senior currency strategist at Daiwa Securities.

"The key point is not necessarily whether the ECB eases thisweek or not, but what kind of language (President Mario) Draghiemploys regarding policy direction."

The euro was also seen weighed down as the pound slumpedtowards a two-year low after Boris Johnson on Tuesday won thecontest to be the next British prime minister and raised thespectre of a no-deal Brexit.

Sterling GBP=D4 was a touch lower at $1.2436, on track forits fourth straight day of losses and edging closer to $1.2382,the two-year trough brushed last week.

The dollar was steady at 108.230 yenJPY= , supported asU.S. Treasury yields climbed to a one-week high amid the ebb ininvestor risk aversion following some progress in U.S.-Chinatrade negotiations.

U.S. Trade Representative Robert Lighthizer and senior U.S.officials will travel to Shanghai on Monday for face-to-facetrade meetings with Chinese officials, Bloomberg reported onTuesday, citing unnamed sources. urn:newsml:reuters.com:*:nL2N24O10V

The greenback was also lifted after Washington on Tuesdayreached a deal to lift government borrowing limits. Analystsreckon increased U.S. borrowing would tighten the supply ofmoney in the country's banking system and in turn support thedollar. urn:newsml:reuters.com:*:nL2N24N0H5

The dollar index .DXY edged up to a five-week high of97.746, following gains of nearly 0.5% the previous day.

The Australian dollar AUD=D4 dipped about 0.15% to a12-day low of $0.6992 against a broadly firmer greenback. (Editing by Jacqueline Wong) ((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging:shinichi.saoshiro.reuters.com@reuters.net+813-6441-1774))

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

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