* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 13 (Reuters) - The dollar held below a three-week high on Wednesday ahead of a speech by Federal Reserve Chairman Jerome Powell on growing speculation that the United States could introduce negative interest rates.
Though some U.S. policymakers have spoken against negative interest rates recently, two-year U.S. Treasury yields fell to a record low of 0.105% last week and 2021 Fed fund futures contracts are skirting negative territory.
U.S. President Donald Trump on Tuesday again pushed the Fed to adopt negative rates as data showed that U.S. consumer prices dropped 0.8% in April, the biggest decline since the Great Recession, fuelling the debate over more policy responses.
“If push comes to shove, the Fed would of course consider negative interest rates, too, but they are likely to be on the bottom of the Fed’s list of possible options when it comes to supporting the financial system or the economy further,” said Commerzbank strategist Antje Praefcke.
Against a basket of rivals, the dollar index edged 0.1% lower to 99.98, hovering below the three-week high of 100.44 hit on Tuesday. The greenback has gained more than 5% from an early March low of 94.63.
While the dollar has benefited from recent safe-haven flows amid the market turmoil, the outlook remains divided, with hedge funds holding their short bets on the currency while institutional investors remain bullish.
Powell will be speaking on current economic issues in a webcast hosted by the Peterson Institute for International Economics at 9 a.m. (1300 GMT)
Until now, Fed officials have said they do not see a need to cut interest rates below zero and some market players expect Powell to stick to that script.
“But what’s worrying is that Trump is now talking about them. Looking at past examples, the Fed has eventually done what Trump wanted quite often,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.
Elsewhere, the New Zealand dollar slumped 1% to $0.6014 against the U.S. dollar after the central bank expanded asset purchase to NZ$60 billion from NZ$33 billion while its policy minutes said that negative interest rates are a future option.
The British pound firmed 0.3% to $1.2288 as bond yields fell after data showed that Britain’s economy contracted by a record 5.8% in March even though consumption dropped less than feared by some market participants. (Reporting by Saikat Chatterjee Additional reporting by Hideyuki Sano in TOKYO Editing by David Goodman )