* After a brief rally on Thursday, euro on back foot again
* Pound gives back some gains, but stays above $1.22
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds context, new quotes and updates prices)
By Olga Cotaga
Aug 23 (Reuters) - The euro fell to three-week lows on
Friday as rising U.S. bond yields boosted the dollar before a
speech by the head of the Federal Reserve, which some investors
believe will see him signal reluctance to embark on a long
rate-cut cycle.
Jerome Powell will address the Jackson Hole symposium of
central bankers at 1400 GMT, and traders are waiting to see how
closely he allies himself with the hawks within the Fed.
Currency markets have in recent months been driven by a
shift at global central banks to looser monetary policy as
economic demand slows and trade disputes intensify.
Expectations that the Fed will cut rates at its next meeting
in September are still high, according to interest rate futures,
but the currency market is likely to react if Powell's comments
don't match the dovish expectations. Money markets price in at
least two rate cuts of 25 basis points this year.
"I would expect him to stress that the U.S. economy is
strong enough that ... just a rate cut or two, taken out as
'insurance', will be enough to keep the recovery on track," said
Marshall Gittler, chief strategist at ACLS Global.
"That's probably more hawkish than what the market is
expecting and could be positive for the dollar."
Bank of America Merrill Lynch (NYSE:BAC) has recently changed its
forecast for euro/dollar, expecting the currency pair to fall to
$1.08 by the end of the year, compared with $1.17 earlier.
"You can make the argument that dollar strength is likely to
persist longer than previously expected," said Kamal Sharma, G10
forex strategist at BAML.
The euro was down 0.2% at $1.1055 EUR=EBS , a three-week
low, as the dollar gained and 10-year U.S. Treasury yields rose
3.7 basis points to 1.65% US10YT=RR . An index that tracks the
dollar against six major currencies .DXY was up 0.3% at 98.43.
The euro's attempt to rally after Thursday's
stronger-than-expected purchasing managers' data for August
fizzled out, with analysts pointing to weakness in the
forward-looking components of the surveys.
The PMIs would keep up pressure on the European Central Bank
to deliver more stimulus because "surveys remain consistent with
weak growth continuing in the third quarter," said Lee Hardman,
currency analyst at MUFG.
Elsewhere, China's offshore yuan stabilized at 7.0920
CNH=EBS after dropping to an 11-day low of 7.1072 overnight as
the People's Bank of China lowered its official yuan midpoint to
an 11-year low. The move was limited even though the set rate
was nowhere near the lows traders expected.
The pound gave back some of the gains made on Thursday after
German Chancellor Angela Merkel said Britain had time until Oct.
31 to come up with a solution to the Irish border problem. It
fell 0.4% to $1.2208 GBP=D3 . Against the euro, it fell 0.2% at
90.58 pence EURGBP=D3 .
Analysts attributed the sterling gains to extreme short
positions on the currency, which would prompt some traders to
unwind those shorts at the merest hint of positive news.