FOREX-Dollar near 2-week high, euro steady as traders temper rate cut views

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Bets on aggressive rate cuts may be excessive
* Draghi's comments on economy support euro
* Focus turns to U.S. data, Fed meeting

By Stanley White
TOKYO, July 26 (Reuters) - The dollar traded near a two-week
high versus the yen as investors pared expectations for
aggressive Federal Reserve interest rate cuts ahead of key U.S.
economic data due later in the day.
The euro held gains after European Central Bank (ECB) kept
policy unchanged, disappointing some market participants who had
bet on a possible easing. ECB President Mario Draghi also
sounded more upbeat on the euro-zone economy than some investors
expected, curbing speculation the bank was about to enter a
prolonged easing cycle.
In addition to Draghi's comments, a bounce in Treasury
yields and data on Thursday showing a surge in U.S. capital
goods orders provided more reasons for traders to reconsider
expectations for global monetary easing.
With no major events scheduled in Asia, investors are likely
to look to U.S. economic data later in the day. The focus then
shifts to Federal Reserve and Bank of Japan (BOJ) meetings next
week.
The Fed is widely expected to cut rates, but there are
growing views such a move may be a one-off event, not the start
of a major easing cycle. The BOJ is also divided over whether to
ease policy, but expectations for a move are low.
"The market had gotten ahead of itself with expectations for
rate cuts, and now we are starting to correct this," said Takuya
Kanda, general manager of research at Gaitame.Com Research
Institute in Tokyo.
"This is supportive of the dollar. This also means it is
difficult to test the euro's downside at these levels."
The dollar traded at 108.675 yen JPY=EBS , near a two-week
high of 108.755 yen. The greenback was on course for a 0.9% gain
on the week, which would be its biggest since the week ending
March 1.
Against a basket of six major currencies, the dollar index
.DXY was at 97.791 after reaching a two-month high of 98.173.
The dollar index was up 0.7% on the week.
Data due later on Friday is expected to show U.S. economic
growth slowed to 1.8% in the second quarter from 3.1% in the
previous quarter, but investors will focus on consumer spending
to gauge the underlying strength of the economy.
The Fed is widely expected to lower its target range of
2.25%-2.50% by 25 basis points at a meeting ending July 31, but
expectations for a larger 50-basis point have waned due to
positive economic data.
Before the Fed meets, the BOJ announces its policy decision
on July 30. Central bank officials are divided on whether to
ease policy, but some argue there is no immediate need for
action as domestic demand offsets weak exports.
The euro EUR=EBS traded at $1.1143, a mild recovery from a
two-month low of $1.1102. However, the euro was down 0.7% this
week.
After the ECB meeting, Draghi indicated the bank was
prepared to cut rates at its next decision in September and
consider other options for easing, but his comments regarding a
low risk of recession supported the euro. Sterling GBP=D3 changed hands at $1.2455, on course for a
0.5% weekly loss. Cable has stabilised since Boris Johnson
became Britain's new prime minister, but there is still
uncertainty about Britain's negotiations to leave the European
Union.