In This Article:
* Fed expected to cut interest rates 25 bps this week
* U.S. easing seen as pre-emptive move to support economy
* Sterling hits 28-month low on no-deal Brexit fears
* Aussie hits 1-month low after soft China data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Hideyuki Sano
TOKYO, July 29 (Reuters) - The dollar clung to a two-month high against a basket of currencies in Asia on Monday after better-than-expected U.S. GDP data last week enhanced its yield attraction against rival currencies.
The U.S. Federal Reserve is widely expected to cut interest rates for the first time in more than a decade this week, but such a move is widely seen as a pre-emptive one to protect the economy from global uncertainties and trade pressures, in contrast to some other countries that face more imminent risks.
"What everyone is interested in right now is whether the U.S. will enter a full rate-cut cycle. The GDP figures were a bit stronger than expected, putting a dent to the view of the U.S. entering a long easing cycle," said Kyosuke Suzuki, director of forex at Societe Generale.
The dollar index stood little changed at 97.919, after having hit a two-month high of 98.093 on Friday.
U.S. gross domestic product increased at a 2.1% annualised rate in the second quarter, above forecast of 1.8%, as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build.
"Recently the dollar has been supported by strong U.S. economic data. The euro zone data has been weak of late so if coming U.S. data such as payrolls figures are strong, the dollar could gain despite a Fed rate cut," said Shinichiro Kadota, senior strategist at Barclays.
The data pushed up U.S. bond yields and cemented expectations that the Fed will go for a smaller interest rate cut of 25 basis points, rather than 50 basis points, to 2.0-2.25 percent.
While U.S. money market futures price in a total of almost 75 basis points of cuts by the end of the year to 1.5-1.75 percent, that still leaves the dollar with the highest interest rates among major currencies.
The European Central Bank signalled last week that it is likely to cut interest rates deeper into negative and adopt more easing measures in September to shore up the sagging euro zone economy.
The euro stood at $1.11315, almost flat in Asia and not far from Thursday's low of $1.1101, a trough since May 2017.
The U.S. currency also got a minor boost from White House economic adviser Larry Kudlow, who said on Friday that the Trump administration has "ruled out" intervening in markets to lower the U.S. dollar's value.