FOREX-Dollar edges up as U.S. yields rise on pared bets for deep rate cuts

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Dollar revival continues as Treasury yields rise
* Sterling extends fall on Brexit uncertainty
* Fed chief Powell's comments to set the tone for currencies

By Stanley White
TOKYO, July 10 (Reuters) - The dollar edged toward a
three-week high against a basket of major currencies on
Wednesday, as an unwinding of bets on deep U.S. interest rate
cuts pushed Treasury yields higher.
Further gains in the greenback depend on the tone Federal
Reserve Chairman Jerome Powell strikes during two days of
Congressional testimony starting later on Wednesday.
Expectations for a 50 basis point rate cut at a Fed meeting
later this month have evaporated, but investors still expect a
25 basis point rate cut due to weak inflation and worries about
the U.S.-China trade war.
The dollar could continue to edge higher if Powell's
comments on the U.S. economy are perceived as neutral or even
slightly hawkish, which would support the argument that
additional rate cuts will be limited.
Renewed strength in the dollar would be an extra worry for
the British pound, which is stuck near a six-month low due to
uncertainty over how Britain will avoid a messy no-deal exit
from the European Union.
"A break in Treasury yields above 2% is a sign the dollar
can continue to rise," said Junichi Ishikawa, senior foreign
exchange strategist at IG Securities in Tokyo.
"The most important event is Powell's comments. An unwinding
of long Treasury positions is pushing up yields and supporting
the dollar."
In Asian trading, the index that tracks the greenback
against six other major currencies .DXY =USD was at 97.518
after touching 97.588 on Tuesday, which was the highest since
June 19.
The dollar edged up to 108.975 yen JPY=EBS in Asia, which
was its strongest level since May 31.
The benchmark 10-year Treasury yield US10YT=RR was at
2.067%, up from a 2-1/2-year low of 1.9390% reached on July 3.
Stronger-than-expected employment growth in June tempered
expectations that the Fed would opt for aggressive rate cuts at
a meeting ending July 31.
The probability of a 25 basis point cut was 97.5% on
Wednesday, with a 2.5% chance of a 50-point cut. A week prior,
those forecasts were 75% and 25% respectively. FEDWATCH
Traders will also closely scrutinise the release later on
Wednesday of minutes from Federal Open Market Committee's
previous meeting.
Sterling GBP=D4 was last quoted at $1.2455 after skidding
to a new six-month low of $1.2439 on Tuesday, with Brexit
jitters and growing expectations of a Bank of England rate cut
adding to the currency's weakness.
Against the dollar, the euro was little changed at $1.1204
after hitting $1.1194, which was the lowest in nearly three
weeks.

(Editing by Jacqueline Wong)