June 20, 2019 / 5:22 AM / a month ago

FOREX-Dollar falls to six-month low versus yen after dovish Fed

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Fed opens door to rate cut as early as July

* Focus shifts to by how much the Fed could opt to cut in July

* BOJ keeps policy on hold

* BOE policy decisions awaited (Adds analyst’s quote)

By Shinichi Saoshiro

TOKYO, June 20 (Reuters) - The dollar fell on Thursday, skidding to a six-month low versus the yen, after the U.S. Federal Reserve signalled it was ready to lower interest rates to combat growing domestic and global risks.

The Fed left interest rates unchanged on Wednesday as widely expected but said the case for lower rates was building, suggesting it could ease monetary policy as early as next month as it took stock of rising trade tensions and growing concerns about weak inflation.

Sterling held on to gains against the dollar ahead of a Bank of England meeting where policymakers are expected to hint at more interest rate hikes.

However, the BOE could be an outlier as other central banks turn dovish and enter a rate cutting cycle, which increases the chance of further declines in bond yields on a global scale.

“Sentiment for the dollar is weak,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co. “Against the yen, further downside may be limited for now, but there is room for more dollar selling elsewhere.”

The dollar fell to 107.54 yen, the lowest since January, and then pared some of its loses to trade at 107.63 yen, down 0.4% on the day.

The greenback came under additional pressure after benchmark 10-year Treasury yields fell to the lowest in more than two years.

The dollar also took a knock after Bloomberg reported that U.S. President Donald Trump believes he has the authority to replace Fed Chair Jerome Powell and demote him to be a board governor.

The dollar index against a basket of six major currencies fell 0.2% to 97.572.

The yen held onto its gains versus the dollar after the Bank of Japan kept its ultra-loose monetary policy unchanged.

“Even though the market had anticipated much of what the Fed said, the dollar’s fall was still a relatively large one,” said Daisuke Karakama, chief market economist at Mizuho Bank.

“The main question is no longer if the Fed will cut rates in July, but whether the easing will be by 25 or 50 basis points.”

The pound also rose 0.3 to $1.2678. Sterling was buoyant ahead of the BOE’s policy meeting later on Thursday, where the central bank may strike a relatively more confident tone than its peers.

In contrast with the general caution displayed by other major global central banks, the BoE is expected to repeat its intention of raising borrowing costs - Brexit permitting.

The euro extended its gains, rising 0.3% to $1.1266.

The common currency has managed to bounce off a two-week low of $1.1181 set earlier in the week after European Central Bank President Mario Draghi’s dovish comments sent German bund yields to record lows.

The New Zealand dollar jumped by more than 0.5% to $0.6575 after data showed the New Zealand economy expanded at a steady pace in the first quarter, supporting the case for the central bank to keep interest rates unchanged at a meeting next week.

China’s yuan rallied to its strongest level in five weeks amid broad dollar weakness and signs that China and the United States are returning to the negotiating table in their trade dispute.

Editing by Shri Navaratnam; Editing by Kim Coghill

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