FOREX-Dollar stalled amid Fed meeting; dovish Draghi depresses euro

(Recasts; adds analyst quote; updates prices)
By Kate Duguid
NEW YORK, June 18 (Reuters) - The U.S. dollar was little
moved on Tuesday as traders held off making large bets before
the Federal Reserve's policy announcement on Wednesday.
The Federal Open Market Committee began its two-day meeting
on Tuesday, and will issue a statement and economic projections
at the close of Wednesday's session. The committee is expected
to leave its benchmark overnight policy rate unchanged at the
current range between 2.25% and 2.5%. But slow employment growth
in May, the ongoing trade war with China and weak inflation data
have increased expectations for dovish remarks.
The dollar index .DXY was last up 0.08% at 97.640, its
highest since June 3.
"Markets are largely keeping the powder dry ahead of
tomorrow's Fed announcement," said Karl Schamotta, chief market
strategist at Cambridge Global Payments.
"We're thinking that we are going to see a relatively dovish
announcement, certainly acknowledging that risks have grown
since the April meeting," he said, citing the expectation in
April that a U.S.-China trade deal was near.
"A recognition of that worsening environment is very likely,
but a rate cut at this point, I don't think is on the table."
On Tuesday, China and the United States rekindled trade
talks ahead of a meeting next week between Presidents Donald
Trump and Xi Jinping, which cheered financial markets but did
little to move rate cut expectations. CME Group's FedWatch tool puts the probability of a
quarter-point interest rate cut on Wednesday at 24.2%, with a
64.7% probability of a cut at its next meeting in July.
The dollar's rise was in part spurred by a weaker euro
EUR= , which fell after European Central Bank chief Mario
Draghi said policymakers will provide more stimulus if inflation
does not pick up. It was last down 0.21% at $1.119, a two-week
low.
At a speech in Sintra, Portugal, Draghi said the ECB could
still cut rates, adjust its guidance, offer mitigating measures
to counter the unwanted side effects of negative rates, and also
had "considerable headroom" for more asset purchases.
"Draghi gave his clearest indication yet that we are looking
at stimulus coming down the pipe and additional monetary
dilution. And that is weighing on the euro's value relative to
the dollar and other global currencies," said Schamotta.
With benchmark euro zone interest rates already in negative
territory and inflation expectations well below central bank
forecasts, markets perceived Draghi's comments as dovish.