FOREX-Dollar near 2-month top after U.S. GDP boosts yield appeal

* Fed expected to cut interest rates 25 bps this week
* U.S. easing seen as pre-emptive move to support economy
* Aussie hits 1-month low after soft China data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Hideyuki Sano
TOKYO, July 29 (Reuters) - The dollar held firm on Monday,
staying near a two-month high against a basket of currencies
after better-than-expected U.S. GDP data last week boosted its
yield attraction against rival currencies.
The U.S. Federal Reserve is widely expected to cut interest
rates for the first time in more than a decade this week, but
such a move is being widely seen as a pre-emptive one to protect
the economy from global uncertainties and trade pressures.
"What everyone is interested in right now is whether the
U.S. will enter a full rate-cut cycle. The GDP figures were a
bit stronger than expected, putting a dent to the view of the
U.S. entering a long easing cycle," said Kyosuke Suzuki,
director of forex at Societe Generale.
The dollar index =USD stood little changed at 97.968,
after having hit a two-month high of 98.093 on Friday.
U.S. gross domestic product increased at a 2.1% annualised
rate in the second quarter, above forecast of 1.8%, as a surge
in consumer spending blunted some of the drag from declining
exports and a smaller inventory build. The data pushed up U.S. bond yields and cemented
expectations that the Fed will go for a smaller interest rate
cut of 25 basis points, rather than 50 basis points, to 2.0-2.25
percent.
While U.S. money market futures price in a total of almost
75 basis points of cuts by the end of the year to 1.5-1.75
percent, that still leaves the dollar with the highest interest
rates among major currencies.
The European Central Bank signalled last week that it is
likely to cut interest rates deeper into negative and adopt more
easing measures in September to shore up the sagging euro zone
economy.
The euro stood at $1.11315 EUR=EBS , almost flat in Asia
and not far from Thursday's low of $1.1101, a trough since May
2017.
Against the yen, the dollar traded at 108.62 yen JPY=EBS ,
down slightly from late U.S. levels on Friday, when it had risen
to a two-week peak of 108.83 yen.
Ahead of the Fed, the Bank of Japan is starting its two-day
policy meeting later on Monday.
Market players expect the BOJ to send dovish messages and it
could try to put on a semblance of easing by changing its
forward guidance but refrain from rate cuts and other major
policy moves given its lack of policy ammunition.
The Australian dollar dipped to one-month low of $0.6900 and
last stood at $0.69105 AUD=D4 following Chinese data on
Saturday showing profits earned by the country's industrial
firms contracted in June after a brief gain the previous month.
U.S. Treasury Secretary Steven Mnuchin and Trade
Representative Robert Lighthizer will meet with Chinese Vice
Premier Liu He for talks in Shanghai starting on Tuesday, their
first face-to-face meeting since U.S. President Donald Trump and
Chinese President Xi Jinping agreed to revive talks late last
month.
But Trump on Friday offered a pessimistic view of reaching a
trade deal with China, saying Beijing may not sign one before
the November 2020 election in hopes a Democrat who will be
easier to deal with, will win.
Sterling fell to a near 28-month low as a no-deal Brexit
seems increasingly likely under new British Prime Minister Boris
Johnson.
Senior ministers said on Sunday the British government is
working on the assumption that the European Union will not
renegotiate its Brexit deal and is ramping up preparations to
leave the bloc on Oct. 31 without an agreement. An opinion poll also showed Johnson's Conservative Party has
opened up a 10-point lead over the opposition Labour Party,
fuelling speculation that Johnson will call an early election.
The pound last traded at $1.2379 GBP=D4 , having slipped to
$1.2375 in early trade.

(Editing by Jacqueline Wong)