* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, June 20 (Reuters) - The dollar sank broadly against
its rivals on Thursday and is on track for its biggest two-day
drop in a year after the U.S. central bank signalled it was
ready to cut interest rates as early as next month.
The sharp fall in the dollar took currency markets by
surprise and forced some hedge funds that had built up large
long dollar bets before the rate decision to dump the greenback.
The Fed joined global peers such as the European Central
Bank and the Australia's central bank this week in signalling
that more policy stimulus is needed to boost growth. That
fuelled a rally in relatively higher-yielding currencies such as
the Australian dollar and the Korean won. "It seems to us as if the 'dovish' Fed and Trump/Xi trade
optimism narratives are both being rolled into a single ball of
USD negativity," said Stephen Gallo, European head of FX
strategy at BMO Capital Markets.
The dollar fell 0.5% against a basket of its rivals .DXY
to 96.64, putting it on course to posting its biggest two-day
losing streak since February 2018.
It also retreated by 0.5% to a six-month low against the
Japanese yen JPY=EBS at 107.47.
"With global central banks engaged in a battle to weaken
their currencies, there is a rush to high-quality currencies
with higher interest rates," said Neil Mellor, a senior currency
strategist at BNY Mellon in London.
The greenback came under additional pressure after benchmark
10-year Treasury yields US10YT=RR slid to their lowest level
in more than two years.
RATE CUT BETS
The overnight drop in global bond yields has boosted rate
cut bets across global markets with money markets pricing in
three rate cuts from the Fed before the end of the year and as
many as five cuts until mid 2020.
But some market participants believe the Fed may kick-start
its rate cutting cycle by aggressive steps compared to
expectations of more gradual easing over the coming months.
"What we thought was particularly aggressive yesterday is
that Powell said they hadn't decided on the size of the cuts,"
said Peter Chatwell, head of rates at Mizuho in London.
"The uncertainty of whether the first move will be 25 basis
points or 50 basis points will be a valid part of market
pricing."
The widespread dollar weakness boosted appetite for
risk-oriented currencies, with the euro barrelling past the
$1.13 line to its one-week high while the Australian dollar and
the New Zealand dollar gained half a percent each.
China's yuan CNY=CFXS rallied to its strongest level in
five weeks amid signs that Beijing and Washington are returning
to the negotiating table in their trade dispute.
Bucking the global trend of dovish central banks, Norway's
central bank raised interest rates and predicted more rate hikes
in the coming months, sending the currency soaring against the
euro and the dollar.
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