March 21, 2019 / 8:21 AM / 4 months ago

FOREX-Euro and yen gain after Fed dovish position hits dollar

* Investors narrow odds on Fed rate cut by year end

* Dollar nears two-week low but losses limited

* Norwegian crown in focus with Norges rate hike expected

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, March 21 (Reuters) - The Federal Reserve’s dovish confirmation fired up a rally in the euro, yen and Australian dollar overnight and into Thursday, with the greenback near two-week lows as investors began to price in a U.S. interest rate cut for later this year.

Norway’s crown was slightly firmer ahead of a Norges central bank decision at which policymakers are expected to hike rates 25 basis points to 1 percent.

The Fed on Wednesday all but abandoned plans to raise rates this year - a signal its three-year campaign to normalise policy might be at an end.

Investors rushed to price in the prospect of rate cuts later this year, while benchmark Treasury yields dived to their lowest since early 2018.

The euro rose to as high as $1.1437 and $1.1448 overnight, its strongest since early February. It was down slightly as London trading got underway but held above $1.14.

The dollar slid to 110.47 yen <JPY=, with its 0.6 percent loss overnight the biggest drop since the flash crash of early January. It later settled at 110.36.

Against a basket of currencies, the dollar index hit its weakest since early February overnight before recovering slightly to 96.019, up 0.3 percent on the day.

Currencies that tend to perform well when risk appetite is strong also rose. The Australian dollar gained 0.4 percent to $0.7150.

“The Fed delivered a surprisingly dovish message,” said MUFG analysts in a note. “The downward pressure on US yields continues to support our outlook for a weaker US dollar this year.”

Sterling edged lower as investors fretted a no-deal Brexit next week was still a possibility, after the European Union made a delay to Britain’s departure contingent on Prime Minister Theresa May getting her withdrawal deal passed by parliament.

May lost the first two attempts to pass her deal. Sterling was 0.2 percent lower at $1.3165.

Emerging market currencies fared far better from the Fed’s dovish confirmation. MSCI’s emerging currency index hit its highest level since last June.

The only solace for the dollar was that other central banks around the globe have also turned decidedly dovish in recent months as growth slowed pretty much everywhere.

That need for stimulus means many central banks will not want to see their currencies appreciate against the dollar, giving them reason to sound ever more accommodative.

CBA senior currency strategist Joseph Capurso said “similarly soft economic growth outlooks elsewhere, including Europe, China, Australia and Japan” meant that it was questionable whether the dollar would depreciate significantly. (Additional reporting by Wayne Cole in Sydney Editing by Raissa Kasolowsky)

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