* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, July 23 (Reuters) – The dollar firmed to a two-week high versus its rivals on Tuesday, a day after U.S. President Donald Trump and congressional leaders agreed a two-year extension of the debt limit, dousing fears of a government default later this year.
The greenback rose 0.31% versus a basket of its rivals to 97.47, its highest level since July 9.
The dollar’s strength was also due to a broadening weakness in the euro as investors gear up for news of fresh stimulus from the European Central Bank on Thursday.
Though money markets have trimmed bets on a 10 basis point deposit rate cut from the ECB to less than 40% from roughly 60% on Friday, analysts expect dovish forward guidance and possibly more generous terms for its planned new multi-year loans.
“Historically, the ECB has been more far more effective at queuing up policy stimulus than delivering it, but there is no taking away the fact that we are in for some volatility ahead on the euro,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.
Hopes of policy easing have increased since ECB President Mario Draghi’s June speech in Sintra, with Italian bond yields falling by more than 100 basis points since then and the euro weakening by more than 2% over that period.
The New Zealand dollar was the biggest loser among developed currencies after Bloomberg News reported that the central bank is refreshing its strategies for unconventional monetary policy.
The euro struggled against the dollar but held firm at a two-year high versus the low-yielding Swiss franc, at around 1.10 francs per euro, on rising concerns that the Swiss National Bank may intervene aggressively to weaken the currency.
While a level below 1.10 francs per euro is considered intervention territory, broadly unchanged sight deposits data from the SNB, the clearest indicator of the Swiss central bank purchasing francs, indicate authorities are not unduly worried about the Swiss currency’s strength for now.
The dollar’s strength was also bolstered by general firmness in U.S. debt, with benchmark 10-year yields <US10YT-RR> hovering around 2.05%.
Britain’s pound was the other notable loser in early London trading, sliding towards the mid $1.24 region ahead of the results of the Conservative Party leadership contest. Boris Johnson is widely expected to win and replace Theresa May as prime minister.
Concerns that Britain will crash out of the European Union without a deal have grown after Johnson said he would pull Britain out of the European Union on Oct. 31 “do or die”.
The pound traded at $1.2459, within striking distance of a 27-month low of $1.2382 reached last week.
(Reporting by Saikat Chatterjee; Editing by Catherine Evans)