FOREX-Euro plumbs 2-month low ahead of ECB, pound under pressure

* Euro on defensive as market braces for dovish ECB
* Dollar index hits 5-wk high as risk aversion ebbs, lifts
yields
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, July 24 (Reuters) - The euro slipped to a two-month
low on Wednesday, as markets waited to gauge the European
Central Bank's stance on policy amid bubbling expectations that
it could eventually lower interest rates and join the global
easing trend.
The common currency EUR= was 0.05% lower at $1.1145 after
touching $1.1143, its lowest since May 31. It had already lost
more than 0.5% the previous day and shed nearly 0.7% so far this
week.
The euro's decline has quickened ahead of the ECB's policy
meeting on Thursday. While markets have pared their bets the
central bank would cut rates by 10 basis points, they still
expect dovish guidance, paving the way for easing in September.
"Attempts within the currency market to price in dovish
moves or language by the ECB have gathered pace over the last
few days, leading to the euro's steep decline," said Yukio
Ishizuki, senior currency strategist at Daiwa Securities.
"The key point is not necessarily whether the ECB eases this
week or not, but what kind of language (President Mario) Draghi
employs regarding policy direction."
The euro was also seen weighed down as the pound slumped
toward a two-year low after Boris Johnson on Tuesday won the
contest to be the next British prime minister and raised the
spectre of a no-deal Brexit.
Sterling GBP=D4 was a touch lower at $1.2433, on track for
its fourth straight day of losses and edging closer to $1.2382,
the two-year trough brushed last week.
The dollar hovered near a one-week high of 108.290 yen
JPY= scaled overnight, supported by a rise in U.S. Treasury
yields as investor risk aversion waned following some progress
in U.S.-China trade negotiations.
U.S. Trade Representative Robert Lighthizer and senior U.S.
officials will travel to Shanghai on Monday for face-to-face
trade meetings with Chinese officials, Bloomberg reported on
Tuesday, citing unnamed sources.
The greenback also firmed after Washington on Tuesday
reached a deal to lift government borrowing limits. Analysts
reckon increased U.S. borrowing would tighten the supply of
money in the country's banking system and in turn support the
dollar. The dollar index .DXY edged up to a five-week high of
97.755, following gains of nearly 0.5% the previous day.
"In addition to the euro's weakness ahead of the ECB
meeting, the dollar is supported as market participants continue
to discount the likelihood of the Fed cutting rates by 50 basis
points at next week's FOMC (Federal Open Market Committee)
meeting," said Ayako Sera, senior market economist at Sumitomo
Mitsui Trust.
Speculation that the Federal Reserve would lower rates by 50
bps at its July 30-31 meeting had increased earlier this month
following comments from some senior Fed officials, but investors
now see a shallower 25 bp cut as more likely.
The Australian dollar AUD=D4 fell to a 12-day low of
$0.6978 after Westpac Banking Corp brought forward the timing of
its forecast for the next rate cut by the Reserve Bank of
Australia (RBA) to October, from November previously. The Aussie
last traded down 0.35% at $0.6980. AUD/

(Editing by Jacqueline Wong)