* Dollar’s advance stalls as U.S. yields reverse course and fall
* Euro steady after shaking off Italy PM’s resignation
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Shinichi Saoshiro
TOKYO, Aug 21 (Reuters) – The dollar was on the defensive on Wednesday, elbowed off a three-week peak by a reversal in U.S. yields as they headed south again ahead of a meeting of central bankers, at which the Federal Reserve is expected to give clues on further rate cuts.
Central bankers will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Fed Chair Jerome Powell.
His comments will take centre stage especially after last week’s inversion of the U.S. yield curve -widely regarded as a recession signal- boosted expectations for the Fed to lower interest rates at its September policy meeting. Faced with rising risks to the U.S. economy, the central bank in July cut rates for the first time since the financial crisis.
The dollar index against a basket of six major currencies was flat at 98.210 after shedding 0.2% overnight.
The index had climbed to 98.450 on Tuesday, its highest since Aug. 1, as U.S. yields bounced back from multi-year lows at the week’s start on signs global policymakers were ready to step up stimulus support to stave off a steep economic downturn.
U.S. yields, however, declined overnight on the prospect of more easing by the Fed.
Takuya Kanda, general manager at Gaitame.Com Research Institute, believes U.S. President Donald Trump’s “strong desire for deep rate cuts” may raise hopes among some traders of strong easing signals at Jackson Hole. But he also warned that Powell may opt to give little away in his speech as the Fed prepares for the September policy review.
Investors will also be looking for clues on the Fed’s plans in minutes of its July policy meeting due later on Wednesday.
The dollar was little changed at 106.330 yen after shedding 0.4% the previous day, while the euro was steady at $1.1094, having put on 0.2% overnight.
The single currency dipped briefly after Italy’s Prime Minister Giuseppe Conte announced his resignation on Tuesday.
“Conte’s resignation won’t have a strong impact on the euro in the longer run as it is only a chapter in the ever-shifting Italian politics,” said Kanda at Gaitame.Com Research.
Sterling traded at $1.2162, holding a bulk of the gains made on Tuesday when it advanced 0.4%.
The pound rose after German Chancellor Angela Merkel said the European Union would think about practical solutions regarding the post-Brexit Irish border.
The Australian dollar was largely flat at $0.6775 after edging up 0.2% on Tuesday. (Reporting by Shinichi Saoshiro Editing by Shri Navaratnam)