* Fed expected to cut interest rates 25 bps this week
* U.S. easing seen as pre-emptive move to support economy
* Sterling hits 28-month low on no-deal Brexit fears
* Aussie hits 1-month low after soft China data
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Hideyuki Sano
TOKYO, July 29 (Reuters) – The dollar clung to a two-month high against a basket of currencies in Asia on Monday after better-than-expected U.S. GDP data last week enhanced its yield attraction against rival currencies.
The U.S. Federal Reserve is widely expected to cut interest rates for the first time in more than a decade this week, but such a move is widely seen as a pre-emptive one to protect the economy from global uncertainties and trade pressures, in contrast to some other countries that face more imminent risks.
“What everyone is interested in right now is whether the U.S. will enter a full rate-cut cycle. The GDP figures were a bit stronger than expected, putting a dent to the view of the U.S. entering a long easing cycle,” said Kyosuke Suzuki, director of forex at Societe Generale.
The dollar index stood little changed at 97.919, after having hit a two-month high of 98.093 on Friday.
U.S. gross domestic product increased at a 2.1% annualised rate in the second quarter, above forecast of 1.8%, as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build.
“Recently the dollar has been supported by strong U.S. economic data. The euro zone data has been weak of late so if coming U.S. data such as payrolls figures are strong, the dollar could gain despite a Fed rate cut,” said Shinichiro Kadota, senior strategist at Barclays.
The data pushed up U.S. bond yields and cemented expectations that the Fed will go for a smaller interest rate cut of 25 basis points, rather than 50 basis points, to 2.0-2.25 percent.
While U.S. money market futures price in a total of almost 75 basis points of cuts by the end of the year to 1.5-1.75 percent, that still leaves the dollar with the highest interest rates among major currencies.
The European Central Bank signalled last week that it is likely to cut interest rates deeper into negative and adopt more easing measures in September to shore up the sagging euro zone economy.
The euro stood at $1.11315, almost flat in Asia and not far from Thursday’s low of $1.1101, a trough since May 2017.
The U.S. currency also got a minor boost from White House economic adviser Larry Kudlow, who said on Friday that the Trump administration has “ruled out” intervening in markets to lower the U.S. dollar’s value.
Against the yen, the dollar slipped 0.2% to 108.47 yen due largely to month-end selling by Japanese exporters, after having hit a two-week peak of 108.83 yen on Friday.
The Bank of Japan is starting a two-day policy meeting later on Monday.
Market players expect the BOJ to send dovish messages and it could try to put on a semblance of easing by changing its forward guidance.
But the central bank looks certain to refrain from rate cuts and other major policy easing given its lack of policy ammunition.
The Australian dollar stood flat at $0.6913 after dipping to one-month low of $0.6900 earlier following Chinese data on Saturday showing profits earned by the country’s industrial firms contracted in June.
U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with Chinese Vice Premier Liu He for talks in Shanghai starting on Tuesday, their first face-to-face meeting since U.S. President Donald Trump and Chinese President Xi Jinping agreed to revive talks late last month.
But Trump on Friday offered a pessimistic view of reaching a trade deal with China, saying Beijing may not sign one before the November 2020 election in hopes a Democrat who will be easier to deal with, will win.
Sterling fell to a 28-month low as a no-deal Brexit seems increasingly likely under new British Prime Minister Boris Johnson.
Senior ministers said on Sunday the British government is working on the assumption that the European Union will not renegotiate its Brexit deal and is ramping up preparations to leave the bloc on Oct. 31 without an agreement.
An opinion poll also showed Johnson’s Conservative Party has opened up a 10-point lead over the opposition Labour Party, fuelling speculation that Johnson will call an early election.
The pound slipped 0.17% to $1.2363, a level last touched in March 2017. (Editing by Jacqueline Wong & KIm Coghill)