(Updates prices throughout, adds detail on Chinese yuan)
* Fed expected to cut interest rates 25 bps this week
* U.S. easing seen as pre-emptive move to support economy
* Sterling hits 28-month low on no-deal Brexit worries
* Aussie hits 1-month low after soft China data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
*
By Marc Jones
LONDON, 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
Britain's rising Brexit risks slugged the pound to a fresh
28-month low.
Most major currencies were keeping moves small ahead of
Wednesday's expected 25 basis point cut by the Federal Reserve,
but there was at least some action to fill the void.
The pound saw another 0.4% swoon after Britain's new foreign
minister and former Brexit chief, Dominic Raab, told the
European Union it needed to change its "stubborn" position to
avoid a no-deal crunch in October. Sterling's drop also followed comments by senior UK
ministers over the weekend that the government was ramping up
preparations for a no-deal outcome and was working on the
assumption that the European Union will not renegotiate its
Brexit deal. An opinion poll also showed new British Prime Minister Boris
Johnson's Conservative Party has opened up a 10-point lead over
the opposition Labour Party, adding to speculation Johnson will
call an early election. The pound dropped to $1.2335, a level last touched in March
2017. It was also back down at 90 pence per euro, while implied
sterling volatility gauges were ramping up and at the highest
since this March's original Brexit deadline.
"It is just the ongoing hardening of the Brexit line," said
Saxo bank's head of FX strategy John Hardy. "There is so much
optionality around it and if there is going to be a cliff edge,
people will want to position for it."
James Binny, head of currency at State Street Global
Advisors, added that he sensed rising no-deal sentiment.
FED AHEAD
The dollar clung to a two-month high against a basket of
currencies after better-than-expected U.S. GDP data last week
enhanced its attraction against its rivals.
The 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 widely seen as a pre-emptive one to protect the economy
from global uncertainties and trade pressures, in contrast to
some other countries that face more imminent risks.
The dollar index =USD stood little changed at 98.064,
after hitting a two-month high of 98.093 on Friday. The euro
hovered at $1.1126 EUR=EBS , almost flat and not far from
Thursday's low of $1.1101, a trough since May 2017.
"What everyone is interested in right now is whether the
U.S. will enter a full rate-cut cycle," said Kyosuke Suzuki,
director of forex at Societe Generale.
"The GDP figures were a bit stronger than expected, putting
a dent to the view of the U.S. entering a long easing cycle."
U.S. gross domestic product (GDP) 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. YUAN LOW
The U.S. currency also got a minor boost from White House
economic adviser Larry Kudlow, who said on Friday that the Trump
administration has "ruled out" intervening in markets to lower
the U.S. dollar's value.
The dollar stayed around 108.60 yen JPY=EBS due largely to
month-end selling by Japanese exporters. It had hit a two-week
peak of 108.83 yen on Friday.
The Bank of Japan started a two-day policy meeting 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 the central bank looks certain to refrain from rate cuts
and other major policy easing given its lack of policy
ammunition.
Further south, the Australian dollar AUD=D4 had dipped to
a one-month low of $0.6900 amid interest rate cut bets there too
and after a fall in Chinese industrial firms' profits in June
had underscored the broader trade war risks again. June was the first full month of higher U.S. tariffs on $200
billion of Chinese goods and the yuan CNY=CFXS had also hit
its lowest in more than five weeks in Asian trading.
U.S. Treasury Secretary Steven Mnuchin and Trade
Representative Robert Lighthizer will meet Chinese Vice Premier
Liu He for talks in Shanghai starting on Tuesday. It is 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 on Friday Trump offered a pessimistic view of reaching a
trade deal with China, saying Beijing may not sign one before
the November 2020 U.S. presidential election in hopes that a
Democrat who will be easier to deal with, will win.
China's foreign ministry spokeswoman said on Monday Beijing
hoped Washington would stick to its commitment to create
positive conditions for the trade talks this week. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Sterling positioning https://tmsnrt.rs/2Mlvhxa
FX markets in 2019 https://tmsnrt.rs/2MmsR1b
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