Forex-Dollar pressured, Fed rate hike bets questioned

By Toni Vorobyova

LONDON (Reuters) - The dollar fell broadly on Tuesday as investors questioned whether the Federal Reserve would deliver the expected series of interest rate hikes in the face of continued economic weakness.

Traders also scaled back rate hike bets in the euro zone, after European Central Bank Executive Board member Lorenzo Bini Smaghi said a quarter-point rate hike should be enough to bring inflation below the ECB's 2 percent target.

But with the ECB still widely expected to raise rates next month from the current 4 percent, the euro retained the upper hand versus the dollar.

The greenback continued the move lower started on Monday after a weekend Group of Eight meeting issued no joint statement against the weakness of the U.S. currency and data showed manufacturing in New York state contracting in June for the fourth time in five months.

"We had some softer (U.S.) economic news and oil hitting a new high, and it seemed to be taken from the point of view not of inflation concerns but more of a refocus on growth and we saw U.S. yields lower, so there has been a bit of a snap back in the dollar," said Martin McMahon, FX strategist at Credit Suisse in Zurich.

"We certainly don't see the Fed putting on 50-75 basis points this year, so our view is that markets were getting ahead of themselves," he added.

By 8:19 a.m. the dollar index was down 0.3 percent at 73.461, adding to Monday's 0.7 percent fall .DXY.

Adding pressure on U.S. yields and the dollar were media reports in The Financial Times, The Wall Street Journal and The Washington Post this week that have highlighted that markets may have become too aggressive in their Fed pricing.