FOREX-Euro weakens as investors raise bets on imminent ECB rate cut

* Euro falls as money markets ramp up ECB rate cut bets
* Williams' comments undermined dollar overnight
* Emerging market currency index hits 4-month high
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds details, quotes, latest prices)
By Tommy Wilkes
LONDON, July 19 (Reuters) - The euro fell against a
rebounding U.S. dollar on Friday, as investors ramped up bets
for a European Central Bank interest rate cut as early as next
week.
Money markets are now pricing in a roughly 60% chance of a
10 basis point rate cut next week, versus a 40% chance earlier
in the week. The euro's drop reversed some of its gains in the previous
session when dovish comments from a key Federal Reserve
policymaker bolstered expectations of an aggressive interest
rate cut this month, hurting the dollar
Rabobank analyst Jane Foley said ECB President Mario Draghi
had surprised the market with dovish comments twice already in
2019, although her bank's base case was still for a September
cut.
"An ECB move would be more likely to have a shock impact...A
25 basis point cut by the Fed is priced in," she said, adding
that euro/dollar could test $1.11 or even $1.10 if the ECB did
lower rates.
The euro was 0.4% lower at $1.1231 EUR=EBS .
Central banks are launching another round of policy easing
in an attempt to lift stubbornly low inflation and fight signs
of an economic slowdown.
At a 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. The dollar dropped before rebounding slightly after a New
York Fed representative subsequently said Williams' comments
were not about immediate policy direction.
Investors are now pricing in a roughly 40% chance of a 50
basis point cut in U.S. rates later this month, although the
dollar has held up reasonably well as investors bet other
central banks will ease policy too.
The dollar index .DXY =USD , which hit a two-week low of
96.648 on Thursday, was 0.2% higher at 96.988.
Expectations of a dovish shift in the rate cycle have
boosted emerging market currencies.
MSCI's emerging market currency index .MIEM00000CUS on
Friday hit a four-month high.
"We stay bearish on the U.S. dollar but put most focus
versus high carry emerging market currencies, helped by global
central bank easing," Morgan Stanley analysts said in a note.
The yen dropped against the dollar, falling 0.3% to 107.66
JPY=EBS
Sterling was on the back foot again, falling 0.2% to $1.2527
GBP=D3 and undoing some of its recovery on Thursday when
British lawmakers voted for a plan to make it harder for a new
prime minister to push through a no-deal Brexit.
The New Zealand dollar, which has rallied more than 1% to a
3-1/2 month high this week as investors expect Fed rate cuts to
boost the attractiveness of the higher-yielding kiwi, eased 0.2%
to $0.6769 NZD=D3 .
The currency has the second-highest bond yield among G10
currencies after the U.S. dollar.

(Editing by Kevin Liffey and Kirsten Donovan)