January 7, 2019 / 2:57 PM / 6 months ago

FOREX-Dollar slides on bets of Fed pausing U.S. rate hikes

    * Fed fund futures price in small chance of rate cut
    * Euro, Swiss franc outperform against dollar
    * Focus on U.S.-China talks
    * Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

 (Adds comment, FX table, updates prices, changes byline,
dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 7 (Reuters) - The dollar weakened on Monday,
pressured by growing expectations the U.S. Federal Reserve will
either pause or halt its interest rate hike cycle, with the euro
and Swiss franc leading gains among its rivals.
    Even after last week's strong U.S. jobs data for December,
market watchers believe the world's biggest economy is losing
momentum. Recent comments by Fed Chairman Jerome Powell have
added to expectations the central bank may adopt a more cautious
    On Friday, Powell told the American Economic Association
that the Fed is not on a preset path of rate hikes and that it
will be sensitive to the downside risks markets are pricing in.

    "Fed Chair Powell's comments Friday that policymakers were
flexible and 'listening carefully' to financial markets helped
support the impression that the Fed tightening cycle may slow or
pause in the coming months," said Shaun Osborne, chief FX
strategist at Scotiabank in Toronto. 
    He added that Fed funds futures continue to price in the
small risk of a rate cut over the coming year, with roughly
eight basis points of easing implied in the January 2019-January
2020 spread early on Monday. 
    In mid-morning trading, the dollar index was down 0.4
percent at 95.736, not far from a 2-1/2-month low of
95.68 hit last week.
    Money markets have priced out a U.S. rate hike this year and
are even pricing in a small probability of a rate cut in 2020.
The Fed raised rates four times in 2018.
    Waning expectations of a U.S. rate hike boosted the euro
, which rose 0.6 percent to $1.14627. The Swiss franc also
gained sharply versus the dollar, which fell 0.7 percent to
0.9798 franc.
    The dollar outperformed other currencies in 2018 on the back
of a Fed being the only major central bank hiking rates. If it
stays on hold in 2019, other currencies such as the euro might
    The FX options markets is showing euro risk reversals - a
gauge of calls to puts and a market sentiment gauge on the
currency - have steadily climbed to their highest levels in more
than six months as investors bet on more upside for the single
    News over the weekend of a Chinese policy stimulus,
meanwhile, helped lift sentiment and boost commodity-focused
currencies such as the Australian dollar, gaining 0.2
percent to US$0.7127.
    Financial markets are also optimistic about a meeting of
U.S. officials and their counterparts in Beijing this week, the
first face-to-face talks since U.S. President Donald Trump and
Chinese President Xi Jinping agreed on Dec. 1 to a 90-day truce
in their trade war.
    Currency bid prices at 9:37AM (1437 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1462        $1.1393     +0.61%         -0.06%      +1.1469     +1.1393
 Dollar/Yen       JPY=        108.2300       108.5200    -0.27%         -1.84%      +108.7400   +108.0400
 Euro/Yen         EURJPY=     124.08         123.70      +0.31%         -1.70%      +124.2300   +123.4200
 Dollar/Swiss     CHF=        0.9796         0.9863      -0.68%         -0.18%      +0.9868     +0.9797
 Sterling/Dollar  GBP=        1.2767         1.2726      +0.32%         +0.08%      +1.2777     +1.2719
 Dollar/Canadian  CAD=        1.3352         1.3372      -0.15%         -2.09%      +1.3389     +1.3338
 Australian/Doll  AUD=        0.7128         0.7112      +0.22%         +1.12%      +0.7141     +0.7110
 Euro/Swiss       EURCHF=     1.1233         1.1244      -0.10%         -0.19%      +1.1260     +1.1226
 Euro/Sterling    EURGBP=     0.8977         0.8954      +0.26%         -0.08%      +0.8988     +0.8953
 NZ               NZD=        0.6759         0.6729      +0.45%         +0.63%      +0.6766     +0.6721
 Dollar/Norway    NOK=        8.5633         8.6101      -0.54%         -0.87%      +8.6145     +8.5610
 Euro/Norway      EURNOK=     9.8184         9.8145      +0.04%         -0.88%      +9.8270     +9.7974
 Dollar/Sweden    SEK=        8.9222         8.9578      +0.20%         -0.46%      +8.9611     +8.9138
 Euro/Sweden      EURSEK=     10.2287        10.2080     +0.20%         -0.34%      +10.2353    +10.2060
 (Reporting by Gertrude Chavez-Dreyfuss
Additional reporting by Saikat Chatterjee in London
Editing by Paul Simao)
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