* Dollar firm on heightened trade tensions
* Pound recovers after biggest weekly drop in six months
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 20 (Reuters) - The dollar held onto last week’s gains on Monday as investors waited for Fed minutes that may give more clues on what prompted U.S. policymakers to strike a broadly neutral stance this month.
The minutes, due on Wednesday, are expected to give insights into the May. 1 Fed meeting which decided to keep interest rates steady and signalled little appetite to adjust them any time soon, taking note of strong jobs growth.
Since then, trade tensions between Washington and Beijing have escalated, casting a shadow on the outlook of global growth and fuelling expectations the U.S. central bank will have to cut interest rates in the coming months.
Indeed, market strategists note the implied yields on U.S. futures contracts are starting to price in a second rate cut this year as concerns have mounted.
“As such, these (Fed) minutes will take on added significance as markets try to figure out the Fed’s true message,” said Win Thin, global head of currency strategy at Brown Brothers Harriman in New York.
Increased expectations of rate cuts have so far have had little impact on the dollar with the currency holding firm against a basket of its rivals after rising 0.7% last week, its biggest weekly rise in two months.
The greenback has found strength from the escalating trade tensions as some investors have turned to it as a safe haven.
Still, positioning data suggested that strength may be temporary, as investors have trimmed some of their long positions in the U.S. currency against both its developed and emerging market rivals.
The Australian dollar surged and is on track for its biggest rise this year as investors cheered an unexpected election win by Prime Minister Scott Morrison’s conservative coalition.
The Aussie was last up 0.7% at $0.6914, having bounced from a four-month trough of $0.6865. It was briefly quoted as high as $0.6990 but dealers said that was a miss-hit and the actual transacted peak was $0.6938.
“The surprise victory is fuelling the rally as many expected the Labour party to win but an Australian rate cut is still very much on the cards in the coming months and that will weigh on the currency,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
The centre-left Labour party had been tipped to win the federal election, beating Morrison’s centre-right Liberal National Coalition, which investors see as more business-friendly.
Tepid economic data, including a rising jobless rate has stoked expectations the Australian central bank will cut interest rates as soon as July.
Britain’s pound recouped some losses after posting its biggest weekly drop in six months last week, edging 0.2% higher at $1.2736 and 0.1% stronger against the euro at 87.62 pence.
Prime Minister Theresa May said on Sunday she would make a “new bold offer” to British lawmakers in an attempt to get her thrice-defeated Brexit deal through parliament before she leaves office.
Reporting by Saikat Chatterjee; Editing by Catherine Evans and Andrew Heavens