FOREX-Dovish Fed spurs dollar's biggest two-day drop in a year

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Recasts; updates prices; adds analyst quote; changes dateline,
previous LONDON)
By Kate Duguid
NEW YORK, June 20 (Reuters) - The U.S. dollar sank against
its rivals on Thursday, putting it on track for its biggest
two-day drop in a year after the Federal Reserve signaled it was
ready to cut interest rates as early as next month.
The Fed joined global peers such as the European Central
Bank and the Reserve Bank of Australia this week in signaling
that more policy stimulus is needed to maintain growth. That
fueled a rally in higher-yielding currencies such as the
Australian dollar AUD= and the Korean won KRW= . "Certainly the market has taken this as a dovish turn and as
a reason to sell dollars," said Lee Ferridge, head of macro
strategy for North America at State Street.
"The theme of the day is going to stay with the dollar under
pressure."
The dollar fell 0.43% against a basket of its rivals .DXY
to 96.70, putting it on course for its biggest two-day losing
streak since February 2018.
It also retreated to a six-month low against the Japanese
yen JPY=EBS at 107.45, though it had retraced some of those
losses early in the North American session.
The sharp fall in the dollar took currency markets by
surprise and forced some hedge funds that had built up large
long-dollar bets before the rate decision to dump the greenback.
It came under additional pressure after benchmark 10-year
Treasury yields US10YT=RR slid to their lowest level in 2-1/2
years.
The widespread dollar weakness boosted appetite for
risk-oriented currencies, with the euro EUR= barreling past
the $1.13 line to a one-week high while the Australian dollar
and the New Zealand dollar NZD= gained more than 0.5% each.
Although the dollar looks weaker in the short term, some
investors were skeptical the trend would last.
For "the high-beta currencies - the Aussie dollar, the Kiwi,
the Canadian dollar - and the EM currencies, I would be wary of
moving into this and thinking this trend is going to last. For
the Fed to deliver what the market is pricing in, things have to
get worse, and that's bad for high-beta and EM," Ferridge said.
The overnight drop in global bond yields has boosted
interest rate cut bets across global markets, with money markets
pricing in three Fed rate before the end of the year and as many
as five cuts until mid-2020.
"Yes, (Powell) opened the door to a July cut. That's pretty
much a done deal. But he didn't set the groundwork for the other
cuts the market was expecting," Ferridge said.