FOREX-Dollar is buoyed by declining bets on big Fed rate cuts

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Dollar regains composure as markets reprice chance of Fed
easing
* Traders await Fed Powell's congressional testimony
* Sterling on defensive due to rate cut speculation

(Updates prices)
By Stanley White
TOKYO, July 9 (Reuters) - The dollar traded near a
three-week high against its peers on Tuesday, as investors pared
bets on aggressive U.S. interest rate cuts ahead of the Federal
Reserve chairman's testimony to Congress on the economy.
Sterling was pinned near a six-month low versus the dollar
on speculation the Bank of England will soon join other major
central banks in easing monetary policy in response to growing
worries about the global economy and Britain's exit from the
European Union.
Fed chief Jerome Powell's comments in two-day testimony to
Congress beginning on Wednesday will be watched to determine
whether traders will continue to reduce bets for deep interest
rate cuts, which could help the dollar continue its rebound
against major currencies.
"There were simply too may dollar shorts built up before
Powell's testimony," said Yukio Ishizuki, foreign exchange
strategist at Daiwa Securities in Tokyo.
"Now people are really starting to question why there were
expectations for a 50 basis point cut. People who sold the
dollar around 107 yen are starting to suffer."
The dollar index .DXY versus a basket of six major
currencies was little changed at 97.366 on Tuesday, which was
close to a three-week high of 97.443 hit on Friday.
The greenback briefly rose to a six-week high of 108.90 yen
JPY=EBS on Tuesday before settling at 108.68 yen, little
changed on the day.
Investors will closely analyse Powell's comments when he
delivers his semi-annual monetary report before Congress to
gauge how far the U.S. central bank will lower interest rates.
A sharp rebound in U.S. job growth in June reduced
expectations that the Fed will cut interest rates by 50 basis
points when it meets at the end of July.
A week ago, the market forecast an 80.1% chance of a
25-basis-point cut, and a 19.9% chance of a 50-basis-point cut,
according to CME Group's FedWatch tool. The chances are now
97.5% and 2.5%, respectively. FEDWATCH
"The dollar is bouncing back, so there are some downside
risks for the euro and cable," said Masafumi Yamamoto, chief
currency strategist at Mizuho Securities in Tokyo.
"There is a risk the Fed will not be as dovish as people
thought. Central banks ahead of the curve in this cycle are
Australia and New Zealand. The Fed is following, but the
European Central Bank and the Bank of England are laggards."
The British pound was last quoted at $1.2515, within
striking distance of $1.2481, its lowest since the "flash crash"
on Jan. 3 when the pound dropped to $1.2409.
Data on UK gross domestic product and industrial output are
due 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.
Last week BoE Governor Mark Carney said a global trade war
and a no-deal Brexit were growing risks to Britain's economy,
which might need more help to cope with a downturn. That
prompted investors to increase their bets on a BoE interest rate
cut. The euro EUR=EBS traded at $1.1210, near a three-week low
of $1.1207.
The Turkish lira was steady in Asia after weakening sharply
following President Tayyip Erdogan's dismissal over the weekend
of the central bank governor, sparking worries about the bank's
independence. The lira at one point slid to a two-week low of 5.8245 to
the dollar TRYTOM=D3 and was last quoted at 5.7355.

(Editing by Jacqueline Wong and Richard Borsuk)