FOREX-Dollar on defensive after Fed signals readiness to cut rates

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Fed opens door to rate cut as early as July
* Focus shifts to by how much the Fed could opt to cut in
July
* BOJ, BeE policy decisions awaited

By Shinichi Saoshiro
TOKYO, June 20 (Reuters) - The dollar was on the defensive
on Thursday after the Federal Reserve signalled it was ready to
lower interest rates to combat growing global and domestic
risks.
The Fed on Wednesday left interest rates unchanged as widely
expected but said the case for lower rates was building,
suggesting it could ease monetary policy as early as next month
as it took stock of rising trade tensions and growing concerns
about weak inflation. The dollar index .DXY against a basket of six major
currencies was little changed at 97.188 after losing more than
0.5% overnight.
"Even though the market had anticipated much of what the Fed
said, the dollar's fall was still a relatively large one," said
Daisuke Karakama, chief market economist at Mizuho Bank.
"The main question is no longer if the Fed will cut rates in
July, but whether the easing will be by 25 or 50 basis points."
With U.S. yields falling after the Fed meeting, the dollar
retreated against the yen. The two-year Treasury yield
US2YT=RR touched 1.737% on Wednesday, its lowest level since
November 2017.
The greenback lost more than 0.3% to brush 107.720 yen
JPY= , its lowest since Jan. 4, coming under further pressure
after Bloomberg reported that U.S. President Donald Trump
believes that he has the authority to replace Fed Chair Jerome
Powell and demote him to be a board governor. Immediate focus for the yen was on the Bank of Japan's
monetary policy decision due later on Thursday.
The BOJ is expected to keep its ultra-loose monetary policy
unchanged but interest in markets will be on whether the Fed's
dovish tilt would have any bearing on its Japanese counterpart.
The euro EUR= stretched overnight gains and advanced 0.2%
to $1.1248.
The common currency has managed to bounce off a two-week low
of $1.1181 set earlier in the week after European Central Bank
President Mario Draghi's dovish comments sent German bund yields
to record lows.
The pound was steady at $1.2652 GBP=D4 after gaining
roughly 0.7% overnight.
Sterling was buoyant ahead of the Bank of England's policy
meeting later on Thursday, where the central bank may strike a
relatively more confident tone than its peers. GBP/
In contrast with the general caution displayed by other
major global central banks, the BoE is expected to repeat its
intention of raising borrowing costs - Brexit permitting.
The Australian dollar AUD=D4 was a touch higher at $0.6885
following a modest gain of 0.1% on Wednesday.

(Editing by Shri Navaratnam)