FOREX-Dollar holds onto gains as investors rein in pricing for big 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

(Adds quotes, details on Australian dollar)
By Stanley White
TOKYO, July 10 (Reuters) - The dollar neared a three-week
high against a basket of major currencies on Wednesday as
investors continued to unwind bets on deep U.S. interest rate
cuts, pushing 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 (bps) rate cut at a Fed
meeting later this month have evaporated, but investors still
expect a 25 bps cut due to weak inflation and worries about
growing business fallout from the U.S.-China trade war.
The dollar could continue to creep 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.
"The Fed is headed for a rate cut, but expectations
surrounding the speed and scale of cuts had gotten out of hand,"
said Tsutomu Soma, general manager of fixed income business
solutions at SBI Securities in Tokyo.
"Now we're scaling things back. U.S. economic data is not as
bad as Europe or other countries. This will support the dollar."
In Asian trading, the index that tracks the greenback
against six other major currencies .DXY =USD was at 97.516
after touching 97.588 on Tuesday, which was the highest since
June 19.
The dollar edged up to 108.990 yen JPY=EBS in Asia, which
was its strongest level since May 31.
The benchmark 10-year Treasury yield US10YT=RR was at
2.0752%, 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 bps cut was 98.5% on Wednesday, with
a 1.5% chance of a 50-point cut. A week earlier, those forecasts
were 75% and 25%, respectively. FEDWATCH
Traders will also closely scrutinise the release later on
Wednesday of minutes from the Federal Open Market Committee's
previous meeting.
"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."
Sterling GBP=D4 was last quoted at $1.2453 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.
Sentiment for the pound remained weak after data on Tuesday
showed sales at British retailers rose at their slowest average
pace on record, highlighting trouble in the economy.
Data on British gross domestic product and industrial output
are due on Wednesday, while the Bank of England will release its
financial stability report on Thursday, which could help traders
gauge whether the BoE will take a more dovish view of the
economy.
The Australian dollar AUD=D4 dipped to $0.69190, the
lowest in almost three weeks after Australian consumer sentiment
slummed to a two-year low, which could prompt another rate cut
from the Reserve Bank of Australia and pressure the government
to offer more fiscal support. The Aussie was on course for its fifth consecutive day of
losses as investors ponder how far the Australian central bank
will lower rates.
Against the dollar, the euro was steady at $1.1208 after
hitting $1.1194, which was the lowest in nearly three weeks.

(Editing by Jacqueline Wong & Kim Coghill)