FOREX-Dollar under pressure after Fed fuels bets on large rate cut

* Williams says Fed should take pre-emptive measures
* Dollar blips up after NY Fed says Williams comments
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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Hideyuki Sano
TOKYO, July 19 (Reuters) - The dollar was on the defensive
on Friday after Federal Reserve officials bolstered expectations
of an aggressive rate cut this month to address weakening price
pressures.
At a central banking conference on Thursday, New York Fed
President John Williams argued for pre-emptive measures to avoid
having to deal with too low inflation and interest rates.
Although a New York Fed representative subsequently said
Williams' comments were academic and not about immediate policy
direction, investors still took his remarks along with separate
comments from Fed Vice Chair Richard Clarida as a dovish signal
from the central bank.
The dollar stood at 107.42 yen JPY= , up 0.15% in early
trade, having hit a three-week low of 107.21 on Thursday while
the euro also slipped 0.15% to $1.12555 EUR= from $1.1282. On
the week, the dollar is down 0.4% versus the yen and almost flat
on the euro.
The dollar index =USD , which hit a two-week low of 96.648,
bounced to 96.824.
The greenback fell broadly on Thursday after Williams'
remarks bolstered bets that the Fed would cut interest rates by
50 basis points, rather than 25 basis points.
Williams said when rates and inflation are low, policymakers
cannot afford to keep their "powder dry" and wait for potential
economic problems to materialise.
That is especially true with neutral rates that would
neither restrict nor accelerate the U.S. economy "around half a
percent," he said. When adjusted for inflation, the neutral rate
is near the Fed's current policy rate, which is in a range of
2.25-2.50%.
Financial markets quickly reacted, with money market futures
FF#: pricing in almost a 70% chance of a 50 basis point cut at
its policy meeting on July 30-31 at one point.
The odds eased to around 40% after the New York Fed said
later that his speech was not about potential actions at the
upcoming policy meeting. Still, Williams' rate-cut view was echoed by Fed Vice Chair
Clarida, who told Fox Business Network the central bank might
have to act early and not wait "until things get so bad".
"Williams' comments were surprisingly dovish. The NY Fed
went all the way to try to modify the message but no one seems
to have done so for Clarida, who also said a very similar
thing," said Daisuke Uno, chief strategist at Sumitomo Mitsui
Bank.