* Dollar firm on heightened trade tensions
* Pound recovers after biggest weekly drop in six months
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 20 (Reuters) - The dollar held onto last week's
gains on Monday as investors waited for Fed minutes that may
give more clues on what prompted U.S. policymakers to strike a
broadly neutral stance this month.
The minutes, due on Wednesday, are expected to give insights
into the May. 1 Fed meeting which decided to keep interest rates
steady and signalled little appetite to adjust them any time
soon, taking note of strong jobs growth. Since then, trade tensions between Washington and Beijing
have escalated, casting a shadow on the outlook of global growth
and fuelling expectations the U.S. central bank will have to cut
interest rates in the coming months.
Indeed, market strategists note the implied yields on U.S.
futures contracts are starting to price in a second rate cut
this year as concerns have mounted.
"As such, these (Fed) minutes will take on added
significance as markets try to figure out the Fed's true
message," said Win Thin, global head of currency strategy at
Brown Brothers Harriman in New York.
Increased expectations of rate cuts have so far have had
little impact on the dollar with the currency holding firm
against a basket of its rivals .DXY after rising 0.7% last
week, its biggest weekly rise in two months.
The greenback has found strength from the escalating trade
tensions as some investors have turned to it as a safe haven.
Still, positioning data suggested that strength may be
temporary, as investors have trimmed some of their long
positions in the U.S. currency against both its developed and
emerging market rivals.
AUSSIE SHINES
The Australian dollar surged and is on track for its biggest
rise this year as investors cheered an unexpected election win
by Prime Minister Scott Morrison's conservative coalition.
The Aussie was last up 0.7% at $0.6914 AUD=D3 , having
bounced from a four-month trough of $0.6865. It was briefly
quoted as high as $0.6990 but dealers said that was a miss-hit
and the actual transacted peak was $0.6938. "The surprise victory is fuelling the rally as many expected
the Labour party to win but an Australian rate cut is still very
much on the cards in the coming months and that will weigh on
the currency," said Esther Maria Reichelt, an FX strategist at
Commerzbank in Frankfurt.
The centre-left Labour party had been tipped to win the
federal election, beating Morrison's centre-right Liberal
National Coalition, which investors see as more
business-friendly. Tepid economic data, including a rising jobless rate has
stoked expectations the Australian central bank will cut
interest rates as soon as July. 0#YIB:
Britain's pound GBP=D3 recouped some losses after posting
its biggest weekly drop in six months last week, edging 0.2%
higher at $1.2736 and 0.1% stronger against the euro EURGBP=D3
at 87.62 pence.
Prime Minister Theresa May said on Sunday she would make a
"new bold offer" to British lawmakers in an attempt to get her
thrice-defeated Brexit deal through parliament before she leaves
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USD index and CFTC https://tmsnrt.rs/2Wi8Y0E
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