* U.S. central bank to start two-day policy meeting
* Investors' immediate focus on Germany's ZEW expectation index
* Graphic: World FX rates in 2019
By Daniel Leussink
TOKYO, March 19 (Reuters) - The dollar was on the defensive on
Tuesday, weighed by growing expectations the Federal Reserve would
adopt a more accommodative policy outlook this week and concerns about
slower U.S. economic growth.
The dollar index , which measures the greenback against a basket
of six major currencies, dipped 0.1 percent to 96.43, hovering close
to a two-week low touched overnight.
The index has lost 1.3 percent after hitting a three-month high of
97.710 on March 7, on views the Fed will strike a dovish tone at its
two-day policy meeting due to start later on Tuesday.
Many investors expect the Fed to keep its benchmark overnight
interest rate unchanged and stick to its pledge of a
"patient" approach to monetary policy.
"Around 30 percent of market participants are expecting a
rate cut this year," said Kumiko Ishikawa, senior analyst at Sony
"The focus is on the extent to which the Fed is able to take
that into account without shocking the market," she added.
Fed funds futures last priced in about 30 percent chance of a
rate cut in 2019, compared with almost zero percent seen earlier this month.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities,
said while the market is expecting more accommodative sentiments from
the meeting, equity markets were unlikely to react positively to such
"If the Fed really shows a gloomy outlook for growth and
rates, then it's also a negative for U.S. equities. Then that will be
a negative for the dollar," Yamamoto said.
"There is a high risk that whichever the outcome is, it will
push down dollar/yen."
As the dollar took a breather, other major currencies advanced by
default. The yen rose 0.2 percent to 111.20 yen per dollar,
extending its gains to a third session.
Sterling also gained, rising almost one-fifth of a percent to
$1.3274. It had seesawed overnight after the speaker of Britain's
parliament said Prime Minister Theresa May's Brexit deal could not be
voted on again unless a different proposal was submitted.
The Bank of England is expected to leave its interest rate outlook
unchanged at a policy meeting on Thursday due to the deep uncertainty
over Britain's decision to leave the European Union.
The euro was slightly higher at $1.1344.
Investors' focus on Tuesday was also on Germany's ZEW economic
index for March, due for release around 1000 GMT.
The German economy, Europe's largest, barely avoided recession in
the final quarter of last year, as the negative impact from global
trade disputes and Brexit weighed on a decade of expansion.
"The ZEW expectation index has been improving for four
consecutive months," said Mizuho's Yamamoto.
"If another month's improvement is shown, then I think that
will be quite positive for the euro."
(Editing by Sam Holmes)
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