Dollar heads towards 3-month lows before Fed meeting; Draghi eyed

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Dollar heads towards 3-month lows before Fed meeting; Draghi eyed
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Dollar heads towards three-month lows before Fed meeting; Draghi eyed

LONDON - The dollar weakened against its rivals on Tuesday, heading back towards a recent three-month low before a U.S. central bank meeting gets underway with expectations growing the Fed will signal its first rate cut in a decade.

A CME Fedwatch tool puts the probability of a quarter-point interest rate cut by the Fed at 20%, with a 70% probability of a rate cut at its next meeting in July. “The majority view among the Fed comments does not suggest any particular appetite for an immediate rate cut, say in June or July,” HSBC strategists said in a note. “The balance of risks favours being long the dollar, not least because positioning is likely a little lighter after the recent sell-off.”

While hedge funds have pared back some of their long positions on the dollar in recent weeks, overall net positions remain near 2019 highs.The euro wallowed at the lower end of a recent trading range against the dollar, holding above the $1.12 line, as markets awaited a speech by European Central Bank chief Mario Draghi where he might shed some more light on how policymakers will fight the next economic downturn.

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