FOREX-Dollar climbs as lengthy Fed easing ruled out, sterling's Brexit pains worsen

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Dollar on front foot after Powell rules out several rate
cuts
* Powell's comments disappointed expectations for dovish
tone
* Sterling at weakest in over 2 years ahead of BoE meeting

(Adds details on Treasuries, Chinese yuan)
By Stanley White
TOKYO, Aug 1 (Reuters) - The dollar rose to a two-year peak
against the euro and jumped to a two-month high versus the yen
on Thursday as U.S. Federal Reserve Chairman Jerome Powell ruled
out a lengthy easing cycle after delivering the first rate cut
since the financial crisis.
In a widely expected move, the U.S. central bank cut rates
by 25 basis points to shore up the economy against risks
including trade friction.
At a press conference after the Fed's decision, Powell said
"it's not the beginning of a long series of rate cuts." At the
same time, he said, "I didn't say it's just one rate cut."
Traders still see one more rate cut this year. Powell's
remarks, however, slashed expectations the Fed is prepared to
lower rates well into next year.
"The comments by Powell were not particularly dovish, so
this is confirmation that this is a small insurance cut," said
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities in Tokyo.
"This outcome limits the dollar's downside from here. Rate
cuts will be on the small side, but this still strengthens the
case for a prolonged U.S. economic expansion, which is positive
for the dollar long term."
The euro EUR=EBS fell to fell to $1.1034, the lowest since
May 16, 2017, before paring losses to trade down 0.2% at
$1.1045.
Against the yen JPY= the dollar broke through an important
resistance level at 109.00 yen to reach a two-month high of
109.35 yen.
The dollar index .DXY against a basket of six major
currencies rose 0.3% to a two-year high of 98.932.
The dollar's gains quickly accelerated versus the yen early
in Asian trading in response to a flattening of the U.S.
Treasury yield curve and a rise in 10-year Treasury yields from
lows set in New York trading.
While financial markets had widely expected the Fed to
reduce its key overnight lending rate by 25 basis points to a
target range of 2.00% to 2.25%, many traders had looked for
clearer confirmation of more rate cuts from Powell.
A day prior to the Fed's meeting, traders had forecast a 35%
chance of three cuts by the end of the year. On Wednesday
afternoon that figure had fallen to 12%, according to CME
Group's FedWatch tool.
The yuan weakened to a 1-1/2-month low against the dollar as
Powell's comments rippled through Asia. China's central bank
kept its main policy rates on hold on Thursday, opting not to
follow its U.S. counterpart's decision overnight. Onshore yuan CNY=CFXS opened at 6.9150 per dollar, the
weakest level since June 18. Although the yuan recovered some of
the earlier losses, it remained hovering at its softest level
since mid-June.
Sterling skidded against the dollar to the lowest in more
than two years on the growing risk of a no-deal Brexit, but the
focus will shift to a Bank of England meeting later on Thursday.
Economists polled by Reuters are almost certain that the
BoE's Monetary Policy Committee will vote 9-0 to keep rates on
hold at 0.75%. But it is less clear how Governor Mark Carney
will tackle the challenge posed by the prospect of Britain
leaving the European Union without provisional trading
agreements. "By no means do we think the weakness for sterling is over,
in the sense that the market needs to price in more risk of a
no-deal Brexit," said Ray Attrill, head of FX strategy at
National Australia Bank in Sydney.
"If the dollar remains supreme in G10 currencies, then this
is trouble for sterling."
Sterling GBP=D3 was down 0.3% at $1.2125, after earlier
hitting $1.2101, the lowest since January 2017.
In the past three months, sterling has tumbled 7.1% due to
growing speculation Britain will go through with a no-deal
Brexit.
Sentiment for sterling took a turn for the worse after new
British Prime Minister Boris Johnson packed his cabinet with
Brexit supporters last month.