* U.S. dollar neutral as investors prepare for Fed meeting
* Australian dollar surges to five-week high against dollar
* Sterling down ahead of parliamentary vote
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Olga Cotaga
LONDON, Sept 9 (Reuters) - The euro fell to a five-day low against the dollar Monday as investors remained convinced the European Central Bank would introduce a new wave of monetary policy stimulus at its meeting on Thursday.
Leveraged funds have increased their net short positions on the euro, expecting the ECB to cut interest rates, announce it will buy government bonds or other European assets, or both.
Other global central banks are already loosening monetary policy, including the People’s Bank of China, which on Friday cut the amount of cash that banks must hold as reserves.
“ECB watchers are confident there could be a 20 bps cut and so the potential surprise (for the euro) on the rate cut isn’t that big,” said Esther Maria Reichelt, a Commerzbank analyst.
“It’s far more difficult to assess what kind of unconventional measures” the ECB could use to stimulate the euro zone economy, which “could have a far bigger impact on the euro,” Reichelt said.
Money markets are pricing in a 72% chance the ECB will cut rates by 20 basis points on Thursday, lower expectations than last week. Some analysts suggest the ECB will start buying euro zone equities, not just government bonds, in a new wave of quantitative easing.
The euro was neutral against the dollar in early London trade at $1.1033. It slipped to $1.10155 overnight, its weakest since Sept. 4.
Hedge funds have added more short euro positions, taking the amount of contracts to $6.74 billion in the week to Sept. 3, the highest in a month, though positions were not as big as in April.
The dollar index, which tracks the U.S. currency against six other currencies, was flat at 98.438. The dollar was confined to a narrow range against the yen as traders weighed the prospect of U.S. rate cuts against their demand for safe-haven assets. Dollar/yen was last flat at 106.93.
The Federal Reserve will continue to act “as appropriate” to sustain the U.S. economic expansion, Fed Chair Jerome Powell said Friday in Zurich, bolstering expectations for a rate cut at the Fed’s meeting on Sept. 18.
Elsewhere, the Australian dollar, a proxy for risk, jumped to a five-week high of 0.68625 against the U.S. dollar as traders became more optimistic that China would withstand the impact of trade disputes with the United States, after its central bank cut its reserve rate ratio.
The New Zealand dollar held onto gains, trading at 0.6419 against the U.S. dollar, not far from the four-week high of 0.6444 it reached on Friday.
Sterling was down 0.4% at $1.2235 as traders waited to see whether the British parliament would vote to hold an early general election before the Oct. 31 Brexit deadline. If a snap election were held and the Conservative Party won, it could scrap recent legislation to extend Britain’s exit from the European Union for a third time. Against the euro, sterling was 0.5% lower at 90.13.
Reporting by Olga Cotaga, editing by Larry King