* Investors expect ECB to signal significant easing
* Euro heads towards $1.11; Swiss franc stuck near 2-year
high
* Sterling above two-year lows ahead of Johnson speech
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds new quotes, context, updates prices)
By Olga Cotaga
LONDON, July 24 (Reuters) - The euro fell to a two-month low
against the dollar on Wednesday, hit by weak economic data and
speculation that the European Central Bank may open the door to
aggressive monetary policy easing as soon as this week.
Money markets are pricing in a 54% chance of a 10 basis
point cut on Thursday's ECB meeting.
The probability rose after the eurozone purchasing managers'
index unexpectedly fell to a three-month low of 51.5 in July
from 52.2 in June. Economists polled by Reuters had expected a
slight decline to 52.1. The 50 mark separates economic growth from contraction.
The ECB could also signal further reductions down the road
or a fresh round of quantitative easing (QE), investors said.
"Disappointing PMIs out of the euro area will only increase
expectations further for (Mario) Draghi to deliver a dovish
sounding message tomorrow," said Mohammed Kazmi, a portfolio
manager at UBP.
"He will be expected to strongly hint at both rate cuts and
QE ahead of easing that is anticipated for September."
The common currency was down 0.1% at $1.1137 EUR=EBS after
earlier hitting $1.1127, its lowest since May 30. The euro hit a
two-year low of $1.1105 in May.
Markets betting on ECB easing have lifted the Swiss franc
EURCHF=EBS , which traded at 1.0980 francs per euro, not far
from the two-year high of 1.0972 reached on Tuesday.
The surging franc is heaping pressure on Swiss officials to
act to protect their export-heavy economy. The euro has shed 2% of its value this month as investors
priced in the probability of euro zone borrowing costs falling
deeper into negative territory. A broadly stronger dollar also
contributed to the single currency's woes.
Expectations of lower interest rates in developed economies
weighed on other currencies, such as the Australian dollar,
which fell 0.5% to a two-week low of $0.6973 AUD=D3 .
Three consecutive days of lower iron ore prices may also be
hurting currencies sensitive to commodity prices like the
Aussie, analysts said.
The U.S. dollar firmed after Washington reached a deal to
lift government borrowing limits, which analysts said could
limit the U.S. Federal Reserve's appetite for rate cuts.
The dollar was flat against a basket of currencies at 97.704
.DXY , having edged up to a five-week high of 97.76 earlier
following gains of nearly 0.5% the previous day.
The pound rose slightly from recent lows after Boris Johnson
on Tuesday won the contest to be Britain's next prime minister,
focusing investor attention on the prospect of a no-deal Brexit.
Some market watchers expect sterling to fall after
eurosceptic Johnson's speech on Wednesday, when he takes over as
prime minister.
"Boris Johnson is deliberately provocative... That would be
enough to get people to worry," said Helen Thomas, chief
executive of macroeconomic consulting firm BlondeMoney.
Sterling was last up 0.3% at $1.2479 GBP=D3 , not far from
the 27-month low of $1.2382 it hit last week.
It rallied 0.4% against the euro to 89.290 pence
EURGBP=D3 .
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