FOREX-Dollar at two-month high ahead of Fed, Brexit knocks pound lower

* Fed expected to cut interest rates 25 bps this week
* Sterling hits 28-month low on no-deal Brexit worries
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Recasts; adds analyst quote; updates prices; changes dateline;
previous LONDON)
By Kate Duguid
NEW YORK, July 29 (Reuters) - The dollar held near a
two-month high on Monday ahead of what is expected to be the
first U.S. interest rate cut since the financial crisis, while
the rising risk that Britain will exit the European Union
without a deal knocked the pound to a 28-month low.
The Federal Reserve is forecast to cut interest rates on
Wednesday by 25 basis points. The move would be a so-called
insurance cut to protect the U.S. economy from global
uncertainties and trade pressures, in contrast to cuts by
countries facing more imminent risks.
President Donald Trump on Monday morning once again targeted
the Fed, writing on Twitter that a small interest rate cut by
the central bank would not be sufficient and accusing U.S.
monetary policymakers of acting more cautiously than China and
Europe. The president, who is seeking re-election in 2020, would
benefit from the financial jolt provided by a cut in short-term
borrowing rates to counter a global economic slowdown.
The dollar index .DXY was up 0.11% in mid-morning trade to
98.115. Better-than-expected U.S. GDP data published on Friday
had buoyed the index against rivals; the greenback retained
those gains on Monday, hitting a fresh two-month top. But the
move was relatively muted as traders refrained from placing big
bets ahead of the Fed decision. The euro hovered at $1.113
EUR= , effectively flat on the day and not far from Thursday's
bottom of $1.110, its lowest since May 2017.
"With a 25-basis-point easing fully baked in the cake, the
question is how dovish will the Fed's forward guidance be?"
wrote analysts at Action Economics.
Despite Friday's strong economic growth figures, "the
markets are still pricing in very dovish guidance, with about 75
basis points in rate cuts projected this year. Hence, there
could be sore disappointment if the Fed doesn't fully deliver,"
they wrote. "This could, with the ECB gearing up for a rate cut
in September, keep the dollar underpinned, and maintain
EUR-USD's downward directional bias."
Elsewhere on Monday, the pound GBP= fell more than 1% to a
28-month low as more investors scrambled to factor in the
growing risk of a no-deal Brexit and the chance that new British
Prime Minister Boris Johnson will call an early election.
"It is just the ongoing hardening of the Brexit line," said
John Hardy, Saxo Bank's head of FX strategy. "There is so much
optionality around it and if there is going to be a cliff edge,
people will want to position for it."