* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Sept 17 (Reuters) - The dollar firmed within sight
of a recent two-year high on Tuesday on the back of ongoing
geopolitical risks in the Middle East with investors looking
forward to an interest rate cut by the U.S. central bank on
Wednesday.
Though a 25 basis points rate cut is firmly baked into
market expectations, some market watchers believe this may be
the last rate cut for a while until there is more evidence of a
U.S. economic slowdown which might encourage dollar bulls.
"If the Fed does cut 25 bps, then we think it will be the
last time until we really do see signs of recession," Brown
Brothers Harriman strategists said in a note.
Money markets are pricing in about an 80% probability of
another U.S. rate cut by the end of the year.
Against a basket of its rivals .DXY , the greenback edged
0.1% higher at 98.744, heading towards a May 2017 high of 99.37
hit earlier this month.
Geopolitical tensions also boosted demand for the dollar.
Though oil prices pulled back slightly after surging to
four-month highs on Monday, they remained about 15% higher than
Friday's close as markets remain wary over the threat of a
military response to attacks on Saudi Arabian crude oil
facilities. O/R
While U.S. President Donald Trump said on Monday he did not
want to go to war, he said the United States was still
investigating if Iran was behind the Saudi strikes. Investors were also watching anxiously an overnight spike in
dollar funding costs.
The overnight rate in the repurchase agreement (repo) market
USONRP=GCMN jumped to 4.10% from 2.29% late on Friday, its
highest levels since the start of the year.
Analysts attributed the rise to quarterly federal tax
payments and supplies. MMT/
"The combination of decent U.S. data, rising geopolitical
tensions, and now this latest flare-up in USD funding conditions
creates an untradeable concoction of factors for various FX
pairs," said Stephen Gallo, European head of FX strategy.
The Swedish crown and the Australian dollar led losers
against the greenback after their respective central banks
flagged a dovish bias in their latest policy meeting minutes.
The crown was down 0.8% versus the euro at a one-week low of
10.7 crowns EURSEK=D3 and had fallen 0.6% to the dollar at
9.72 SEK=D3 .
On Sept. 5, the Riksbank held the repo rate unchanged at
-0.25% and said it still expected to raise rates in coming
months, a view many analysts saw as over-optimistic.
The minutes showed the six rate-setters unanimous about the
decision but cautious about the rate hike path. The Australian dollar also fell 0.5% after the Reserve Bank
of Australia flagged an easing bias in meeting minutes.
Dollar positions https://tmsnrt.rs/302mqb3
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>