* Euro, pound mark time ahead of ECB meet, UK PM vote
* Gulf crisis turns sentiment to risk-off
* Dollar steady at 107.73 yen, dollar index unmoved
By Tom Westbrook
SYDNEY, July 22 (Reuters) - The dollar held recent gains on Monday
as investors tempered some of their expectations for deep U.S.
interest rate cuts this month and heightened Middle East tensions
supported safe-haven assets.
While currency market focus will mostly centre on global central
bank decisions scheduled for the next two weeks, investors are also
watching for any developments in U.S.-China trade negotiations.
Markets generally expect central banks to either cut rates or keep
policy accommodative, starting with the European Central Bank (ECB)
which meets on Thursday followed by the Bank of Japan and the U.S.
Federal Reserve next week.
"A series of central bank events in the last several weeks
have inflated monetary expectations," analysts at JPMorgan Chase
& Co said in a note. "The moment of truth is now around the
corner as central banks will be forced to unveil their policy intentions."
The dollar hovered at levels it hit on Friday, around 107.73 yen
, but was trapped in the middle of a 107-109 range where it has traded
for a month.
The dollar index , which measures the greenback against a basket
of six major currencies, was barely changed at 97.147 after gaining
0.35% last week.
The euro was flat at $1.1217, after declining 0.4% last week.
Confrontation in the global oil trade's most important waterway
has escalated with footage showing the Iranian military defying a
British warship when it seized a tanker in the Strait of Hormuz on
That lifted oil prices and kept the dollar close to where it left
after volatile trade on Friday when the New York Federal Reserve
walked back dovish comments from its president.
"The Fed's position helped the USD firm," ANZ bank
strategist Sandeep Parekh said in a note on Monday morning.
"Escalating tension in the Persian Gulf is likely to weigh on
risk sentiment in the near term."
New York Fed President John Williams had last week sent the dollar
tumbling after a speech where he argued for pre-emptive stimulus.
But a subsequent clarification that his remarks were academic and
"not about potential policy actions" shredded expectations
for a 50-basis-point interest rate cut at the end of the month and
lifted the currency higher.
Expectations for a rate cut of half a percentage point at the
Fed's July 30-31 meeting edged out further on Monday to hit 14.5%,
according to CME's FedWatch tool, down from as high as 71% last week.
Markets still see it as a certainty the Fed will cut rates by at
least a quarter of a percentage point at the meeting.
In Asia, investor focus remains on China as Beijing and Washington
to end a protracted trade war. A report over the weekend by China's
official Xinhua news agency suggested some local firms were seeking to
buy U.S. farm products, seen by some as a possible sign of progress.
Elsewhere, investors are waiting to see if Boris Johnson will win
the British Conservative Party's leadership ballot. The pound held
around $1.2507, staying on a slippery slope since mid-March largely
led by political uncertainty in the country.
(Reporting by Tom Westbrook; Editing by Sam Holmes)
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