FOREX-Dollar hits 2-year high vs euro as Powell rules out prolonged easing cycle

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Dollar on front foot after Powell rules out several rate
cuts
* Powell's comments disappointed expectations for dovish
tone
* Sterling stabilises but focus turns to BoE meeting

By Stanley White
TOKYO, Aug 1 (Reuters) - The dollar rose to a two-year peak
against the euro and hit a two-month high versus the yen on
Thursday as U.S. Federal Reserve Chairman Jerome Powell ruled
out a lengthy easing cycle after delivering the first rate cut
since the financial crisis.
In a widely expected move, the U.S. central bank cut rates
by 25 basis points to shore up the economy against risks
including trade friction.
At a press conference after the Fed's decision, Powell said
"it's not the beginning of a long series of rate cuts." At the
same time, he said, "I didn't say it's just one rate cut."
Traders still see one more rate cut this year. Powell's
remarks, however, slashed expectations the Fed is prepared to
lower rates well into next year.
"The comments by Powell were not particularly dovish, so
this is confirmation that this is a small insurance cut," said
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities in Tokyo.
"This outcome limits the dollar's downside from here. Rate
cuts will be on the small side, but this still strengthens the
case for a prolonged U.S. economic expansion, which is positive
for the dollar long term."
The dollar index .DXY against a basket of six major
currencies was last quoted at 98.516, close to a two-year high
of 98.683 reached on Wednesday.
The euro EUR=EBS fell 0.2% to $1.1052 early in Asian trade
to reach the lowest since May 16, 2017.
While financial markets had widely expected the Fed to
reduce its key overnight lending rate by 25 basis points to a
target range of 2.00% to 2.25%, many traders had looked for
clearer confirmation of more rate cuts from Powell.
A day prior to the Fed's meeting, traders had forecast a 35%
chance of three cuts by the end of the year. On Wednesday
afternoon that figure had fallen to 12%, according to CME
Group's FedWatch tool.
Against the yen the dollar rose 0.4% to a two-month high of
109.165 yen.
Elsewhere in currency markets, sterling fell against the
dollar toward a two-year low on the growing risk of a no-deal
Brexit, but the focus will shift to a Bank of England meeting
later on Thursday.
Economists polled by Reuters are almost certain that the
BoE's Monetary Policy Committee will vote 9-0 to keep rates on
hold at 0.75%. But it is less clear how Governor Mark Carney
will tackle the challenge posed by the prospect of Britain
leaving the European Union without provisional trading
agreements. Sterling GBP=D3 was down 0.3% at $1.2142, near a two-year
low of $1.2120. Sterling tumbled 4.2% last month, its worst
monthly performance since October 2016, due to growing
speculation Britain will go through with a no-deal Brexit.