FOREX-Dollar drifts before Fed, euro set for first monthly drop this year

By Ankur Banerjee

SINGAPORE, July 30 (Reuters) - The U.S. dollar wobbled near a one-month high on Wednesday ahead of the Federal Reserve's policy decision, while the euro was poised to snap its run of six straight monthly gains as investors counted the cost of the U.S.-EU trade pact .

The Japanese yen JPY=EBS firmed against the dollar after a powerful earthquake struck off Russia's Far Eastern Kamchatka Peninsula and generated a tsunami, prompting evacuation warnings in the area and across most of Japan's east coast.

Currency markets were mostly steady as investors were hesitant to place bets before crucial economic reports and central bank meetings in Canada, Japan and the United States.

U.S. and Chinese officials agreed to seek an extension of their 90-day tariff truce, following two days of what both sides described as constructive talks in Stockholm.

No major breakthroughs were announced and U.S. officials said it was up to President Donald Trump to decide whether to extend a truce that expires on August 12.

The Sino-U.S. talks come after a framework deal between the U.S. and EU was announced on Sunday. The accord has evoked a mix of relief and concern from Europe, as the agreement was lopsided and skewed towards the United States.

Investors have been keeping an eye on the trade pacts as countries scramble to get deals over the line before the August 1 deadline set by U.S. President Donald Trump.

"Markets seem to be increasingly interpreting trade agreements as symbolic and tactical rather than structural resolution," said Charu Chanana, chief investment strategist at Saxo in Singapore.

"With terms often vague and enforcement mechanisms weak, investors are assigning lower market beta to these negotiations unless backed by concrete detail."

The euro EUR=EBS firmed a bit to $1.1555 after dropping for the first two days of the week and hitting a one-month low of $1.15185 on Tuesday. The euro is up 11.7% since the start of the year but on course for its first monthly drop this year.

The single currency has benefited this year from the dollar losing its lustre due to Trump's erratic trade policies, prompting investors to look for alternatives.

Sterling GBP=D3 was at $1.3355. The Australian dollar AUD=D3 last bought $0.6514, steady on the day, after a set of surprisingly soft inflation figures that only cemented expectations for an interest-rate cut next month. AUD/

The dollar index =USD, which measures the U.S. currency against six others, was at 98.823, hovering near a one-month high and on course to post its first month of gains this year.

Investor focus will now switch to central bank meetings, with the Fed widely expected to stand pat on rates later on Wednesday, making comments from Chair Jerome Powell crucial to gauge the policy path.

The meeting comes in the wake of Trump's constant demands for rate cuts, which have coincided with an unrelenting campaign of attacks on Powell by the president and administration officials.

There is speculation that Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman could issue dissents if the Fed on Wednesday holds the policy rate steady for the fifth time since December. Both were appointed by Trump as was Powell.

"While dissenting isn't uncommon, the dissents at this week's meeting may get more focus because Trump has made it crystal clear that he thinks the FOMC should be lowering interest rates," said Kristina Clifton, a senior economist at the Commonwealth Bank of Australia in Sydney.

"Dissents at this meeting may be judged as political and put a dent in perceptions of the FOMC's independence."

The BOJ is also expected to stand pat and the spotlight will be on comments from Governor Kazuo Ueda as investors hope the recent trade deal between Japan and the U.S. paves the way for the central bank to raise interest rates again this year.

The yen firmed 0.4% to 147.85 per dollar and was last at 148.06 after news broke about the Pacific earthquake and tsunami, with investors on alert for any damage to key infrastructure in Japan.

Christopher Wong, currency strategist at OCBC, said the yen strength was in reaction to earthquake-related headlines and probably exacerbated by thin market liquidity.

"The Nightmare of 2011 Tohoku earthquake lingers," he said, referring to the earthquake and tsunami that devastated northeastern Japan in March 2011.

In cryptocurrencies, bitcoin BTC= was 0.5% higher at $118,042.85, while ether ETH= rose 1.2% to $3,808.81.