FOREX-Euro hits 2-month low as markets wait to gauge ECB's policy stance

* Euro on defensive as market braces for dovish ECB
* Dollar index hits 5-wk high as risk aversion ebbs, lifts
yields
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Shinichi Saoshiro
TOKYO, July 24 (Reuters) - The euro slipped to a two-month
low on Wednesday, as markets waited to gauge the European
Central Bank's stance on policy amid bubbling expectations that
it could eventually lower interest rates and join the global
easing trend.
The common currency EUR= was little changed at $1.1147
after touching $1.1144, its lowest since May 31. It had already
lost more than 0.5% the previous day.
The ECB holds a policy meeting on Thursday. Market
expectations for the central bank to cut rates by 10 basis
points have ebbed somewhat, but the central bank is still hoped
to provide dovish guidance, paving the way for easing in
September. "Attempts within the currency market to price in dovish
moves or language by the ECB have gathered pace over the last
few days, leading to the euro's steep decline," said Yukio
Ishizuki, senior currency strategist at Daiwa Securities.
"The key point is not necessarily whether the ECB eases this
week or not, but what kind of language (President Mario) Draghi
employs regarding policy direction."
The euro was also seen weighed down as the pound slumped
towards a two-year low after Boris Johnson on Tuesday won the
contest to be the next British prime minister and raised the
spectre of a no-deal Brexit.
Sterling GBP=D4 was a touch lower at $1.2436, on track for
its fourth straight day of losses and edging closer to $1.2382,
the two-year trough brushed last week.
The dollar was steady at 108.230 yen JPY= , supported as
U.S. Treasury yields climbed to a one-week high amid the ebb in
investor risk aversion following some progress in U.S.-China
trade negotiations.
U.S. Trade Representative Robert Lighthizer and senior U.S.
officials will travel to Shanghai on Monday for face-to-face
trade meetings with Chinese officials, Bloomberg reported on
Tuesday, citing unnamed sources.
The greenback was also lifted after Washington on Tuesday
reached a deal to lift government borrowing limits. Analysts
reckon increased U.S. borrowing would tighten the supply of
money in the country's banking system and in turn support the
dollar. The dollar index .DXY edged up to a five-week high of
97.746, following gains of nearly 0.5% the previous day.
The Australian dollar AUD=D4 dipped about 0.15% to a
12-day low of $0.6992 against a broadly firmer greenback.

(Editing by Jacqueline Wong)