January 25, 2019 / 3:57 PM / 10 months ago

FOREX-Dollar tumbles as focus turns to Fed's policy meeting

    * Spotlight on Fed policy meeting next week
    * Euro recovers as ECB caution priced in
    * Sterling gains 0.4 pct vs U.S. dollar on Brexit hopes
    * Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

 (Recasts, adds comment, FX table, updates prices, changes
byline, dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 25 (Reuters) - The dollar fell on Friday from
its three-week highs in the previous session, as traders' focus
shifted to the Federal Reserve's policy meeting next week when
the U.S. central bank is expected to leave interest rates
    "While the Fed next week may not sound overtly dovish, its
tone might emphasize caution and thus do little to alter very
low expectations for policymakers to raise rates this year,"
said Joe Manimbo, senior market analyst at Western Union
Business Solutions in Washington.
    The Fed raised interest rates four times last year and has
signalled it will probably lift borrowing costs twice in 2019,
though some central bank officials have said they will be
patient in raising rates. 
    In mid-morning trading, the dollar index was down 0.6
percent at 96.046, after climbing to a three-week high of
96.676 on Thursday.
    The dollar's decline also coincided with a rally in U.S.
stocks, which were bolstered by upbeat earnings.  
    The euro, on the other hand, rebounded on Friday, steadying
after a dovish European Central Bank President Mario Draghi
failed to alter an already downbeat assessment on the euro
zone's economy.
    Draghi warned on Thursday that a dip in the euro zone's
economy could be more pronounced than thought a few weeks ago,
comments seen as signalling a delay in the bank's first interest
rate hike.
    The euro on Thursday weakened broadly on those comments and
fell to a two-month low of $1.1286 against the dollar.
But on Friday, the single currency recovered, rising 0.7 percent
to $1.1379.
    "A relatively dovish performance from Draghi was already
priced in," said John Hardy, head of FX strategy at Saxo Bank.
    Markets are pricing in an ECB interest rate rise only for
mid-2020 as the euro zone economy is suffering its biggest
slowdown in more than half a decade, with no recovery in sight.
    Indeed, a key German business morale indicator fell for the
fifth straight month in January.
    The euro has traded in a range of $1.12 to $1.16 for the
past three months, and analysts expect it to underperform in the
near term as monetary policy is expected to remain accommodative
for now.
    Sterling reached an 11-week high on Friday after a report in
the Sun newspaper that Northern Ireland's Democratic Unionist
Party had privately decided to offer conditional backing for
British Prime Minister Theresa May's Brexit deal next week.
    The report pushed the pound 0.4 percent higher to $1.3139,
its highest level since Nov. 9. Sterling has risen
about 1.8 percent this week, moving above $1.30 to the dollar on
hopes Britain will avoid a no-deal Brexit on March 29.

    Currency bid prices at 10:22AM (1522 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1392        $1.1305     +0.77%         -0.67%      +1.1395     +1.1298
 Dollar/Yen       JPY=        109.5700       109.6300    -0.05%         -0.63%      +109.9500   +109.5200
 Euro/Yen         EURJPY=     124.85         123.92      +0.75%         -1.09%      +124.8900   +123.7900
 Dollar/Swiss     CHF=        0.9936         0.9963      -0.27%         +1.24%      +0.9974     +0.9938
 Sterling/Dollar  GBP=        1.3143         1.3064      +0.60%         +3.03%      +1.3143     +1.3057
 Dollar/Canadian  CAD=        1.3249         1.3347      -0.73%         -2.85%      +1.3362     +1.3246
 Australian/Doll  AUD=        0.7161         0.7094      +0.94%         +1.59%      +0.7163     +0.7077
 Euro/Swiss       EURCHF=     1.1322         1.1261      +0.54%         +0.60%      +1.1325     +1.1260
 Euro/Sterling    EURGBP=     0.8670         0.8651      +0.22%         -3.52%      +0.8681     +0.8618
 NZ               NZD=        0.6829         0.6761      +1.01%         +1.67%      +0.6830     +0.6748
 Dollar/Norway    NOK=        8.5208         8.5865      -0.77%         -1.36%      +8.5900     +8.5207
 Euro/Norway      EURNOK=     9.7115         9.7062      +0.05%         -1.96%      +9.7134     +9.6882
 Dollar/Sweden    SEK=        9.0443         9.0844      +0.38%         +0.90%      +9.0952     +9.0444
 Euro/Sweden      EURSEK=     10.3081        10.2693     +0.38%         +0.43%      +10.3141    +10.2567
 (Reporting by Gertrude Chavez-Dreyfuss
Additional reporting by Tom Finn in London
Editing by Paul Simao)
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