September 25, 2018 / 3:06 PM / in 25 days

FOREX-Dollar softer ahead of Fed rate decision; hike largely priced in

    * Praet says Draghi comments nothing new
    * Dollar quiet ahead of two-day Fed meeting; rate hike
expected
    * Major currencies shrug off latest trade war tariffs
    * Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

 (Recasts, adds comment, FX table, updates prices, changes
byline, dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 25 (Reuters) - The dollar was weaker on
Tuesday ahead of a Federal Reserve meeting that is widely
expected to end with an interest rate hike, as investors already
have priced in two more rate increases this year and some in
2019, leaving little room for further currency gains.
    The Fed kicks off its two-day meeting later in the session,
with market participants focused on the U.S. central bank's view
on the economy as well as its guidance on future tightening. The
Fed already has raised rates twice in 2018.
    The dollar has benefited from a hawkish rate outlook all
year, but has lost steam the last few weeks, as other economies
such as the euro zone improved, keeping them closer to a shift
to tighter monetary policy. 
    Since mid-August, the dollar has declined 3.1 percent
against a basket of currencies.
    "The U.S. dollar appears vulnerable heading into Wednesday's
Fed, given extended speculative bullish positioning against most
of the G10 currencies and considerable tightening already
reflected in fed funds futures," said Eric Theoret, currency
strategist at Scotiabank in Toronto.
     He added that a December hike was priced around 80 percent,
with roughly 50 basis points of tightening reflected for 2019. 
    In mid-morning trading, the dollar index was down 0.1
percent, at 94.051. 
    The euro, on the other hand, rose despite a European Central
Bank official downplaying on Tuesday its president Mario
Draghi's comments a day earlier about "relatively vigorous"
inflation. 
    Some analysts said the euro was also supported by signs 
Italy's anti-establishment coalition is likely to reach a
compromise over its 2019 budget.
    The euro was last up 0.4 percent at $1.1789. It had
touched a 3-1/2 month high on Monday after Draghi expressed
confidence in euro zone inflation and wage growth, before giving
up most of those gains.
    But the ECB's chief economist Peter Praet said on Tuesday
there was nothing new in Draghi's comments. The single currency
managed to find strength. 
    Most analysts have interpreted Draghi's speech as hawkish -
euro zone money markets brought forward their expectations for a
10 basis point ECB rate hike to September from October 2019 -
helping to underpin the single currency.
    Against the yen, however, the dollar was up slightly at
112.86 yen after minutes from the Japanese central bank's
July policy meeting showed that a few board members said the
Bank of Japan must consider more seriously the potential dangers
of ultra-easy policy.
    Overall, the broader currency market was largely quiet on
Tuesday as the latest round of tariffs in the U.S.-China trade
conflict kept investors on edge.
    "There is a general lack of impulses. The market is not
reacting (to the trade war) because we are not seeing any
economic impact. The other big driver (of currencies) is usually
monetary policy but the FOMC is going to be a non-event," Thu
Lan Nguyen, a strategist at Commerzbank in Frankfurt said,
referring to the Federal Open Market Committee.
    
========================================================
    Currency bid prices at 10:19AM (1419 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.1790        $1.1746     +0.37%         -1.74%      +1.1792     +1.1732
 Dollar/Yen       JPY=        112.8700       112.7900    +0.07%         +0.17%      +112.9600   +112.7500
 Euro/Yen         EURJPY=     133.06         132.51      +0.42%         -1.57%      +133.1000   +132.3800
 Dollar/Swiss     CHF=        0.9651         0.9646      +0.05%         -0.94%      +0.9671     +0.9642
 Sterling/Dollar  GBP=        1.3161         1.3119      +0.32%         -2.60%      +1.3171     +1.3096
 Dollar/Canadian  CAD=        1.2949         1.2955      -0.05%         +2.96%      +1.2972     +1.2936
 Australian/Doll  AUD=        0.7255         0.7252      +0.04%         -7.00%      +0.7263     +0.7237
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.1377         1.1334      +0.38%         -2.67%      +1.1380     +1.1327
 Euro/Sterling    EURGBP=     0.8956         0.8952      +0.04%         +0.82%      +0.8975     +0.8939
 NZ               NZD=        0.6652         0.6643      +0.14%         -6.12%      +0.6658     +0.6631
 Dollar/Dollar                                                                                  
 Dollar/Norway    NOK=        8.1095         8.1402      -0.38%         -1.18%      +8.1509     +8.1086
 Euro/Norway      EURNOK=     9.5614         9.5629      -0.02%         -2.92%      +9.5787     +9.5558
 Dollar/Sweden    SEK=        8.7940         8.7977      +0.32%         +7.22%      +8.8071     +8.7611
 Euro/Sweden      EURSEK=     10.3703        10.3369     +0.32%         +5.40%      +10.3717    +10.3118
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Tommy Wilkes in London; Editing by Andrea Ricci)
  
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