FOREX-Dollar treads water before Fed, sterling steadies on looming election

* All eyes on Fed's policy decision due later Wednesday
* UK to hold general election on Dec 12 to break Brexit
deadlock
* US-China deal may not be ready for signing at APEC
summit:source
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tomo Uetake
TOKYO, Oct 30 (Reuters) - The dollar traded narrowly as
markets braced for a rate cut by the Federal Reserve later on
Wednesday, while sterling steadied after Britain's lower house
of parliament approved calling an early election in December
that might break the Brexit deadlock.
The dollar was steady against the euro at $1.1110 EUR= and
flat versus a basket of six major currencies at 97.698 .DXY as
investors awaited the Fed's interest rate decision.
Against the yen, the greenback was also little moved at
108.84 yen JPY= , not far from its three-month high of 109.07
yen touched on Tuesday.
The U.S. central bank is expected to cut its policy rate for
a third time in a row when it concludes its two-day meeting on
Wednesday.
After lowering interest rates in July and September, the
central bank was expected to cut again by 25 basis points,
taking the fed funds rate to 1.50%-1.75%, a Reuters poll of
economists found. Another cut is forecast for early next year,
taking the rate to 1.25%-1.50%, with no more changes expected
for the rest of 2020. "With a cut today completely priced in, markets are looking
to the Fed's stance on its policy outlook," said Masahiro
Ichikawa, senior strategist at Sumitomo Mitsui DS Asset
Management.
Investors are watching for any indication that further cuts
are likely, with futures pricing suggesting more easing is
expected in 2020. If that is not foreshadowed, traders expect
the dollar to rise.
"If the market is going to price in the end of current
rate-cut cycle, the dollar/yen could climb above 110 yen," said
Tohru Sasaki, head of Japan rates and FX research at JPMorgan.
"On the other hand, if the market is going to price in two
more cuts after this month's expected cut, the pair could fall
to mid-107 yen level," he added.
Optimism that Washington and Beijing would finalise the
first-stage of a trade deal next month had boosted risk assets
in recent days, but markets turned wary on the prospect this
could be delayed.
A U.S. administration official said on Tuesday an interim
trade agreement between the United States and China might not be
completed in time for signing on the sidelines of an
Asia-Pacific summit in Chile next month, but that does not mean
the accord is falling apart. Meanwhile, hopes that a disorderly Brexit can still be
avoided supported the pound.
Britain will hold its first December election in almost a
century after Prime Minister Boris Johnson won approval from the
lower house of parliament on Tuesday for an early ballot aimed
at breaking the deadlock over the UK leaving the European
Union. The bill calling for a Dec.12 election now goes to the
House of Lords for approval. On Monday, the EU agreed to a three-month flexible delay to
Britain's departure. Before settling back, the pound climbed as high as $1.2903
overnight on news that an election date was likely to be agreed.
"Sterling has struggled to hold onto modest knee-jerk gains
because the outcome of an election is highly uncertain," said
Ray Attrill, head of FX strategy at National Australia Bank.
While Johnson seeks to gain a parliamentary majority to
ratify his Brexit deal, the outcome of the election remains
unpredictable, with large numbers of voters fatigued and enraged
by the Brexit process over the past three years. Both major
parties, the ruling Conservatives and opposition Labour, have
suffered an erosion of support among their traditional
vote-banks.
Sterling last stood at $1.2865 GBP=D4 .
Elsewhere, Chinese yuan inched up marginally as investors
awaited the outcome of the Fed meeting and more clarity on how
Sino-U.S. trade negotiations are going.
In the spot market, onshore spot yuan CNY=CFXS was last
changing hands at 7.0650, 25 pips firmer than the previous late
session close.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate CNY=PBOC at a two-month high of 7.0582
per dollar, 35 pips firmer than Tuesday's fix.