* Graphic: World FX rates in 2019 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 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 in Asia, which was its strongest level since May 31.
The benchmark 10-year Treasury yield 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.
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 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 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)