* Optimism on trade as investors hope for Sino-U.S. progress
* Dollar holds overnight gains on yen, Aussie supported
* Fed cut expected, rhetoric to set tone
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Westbrook
HONG KONG, Oct 29 (Reuters) - Both the dollar and riskier
Asian currencies held on to modest overnight gains on Tuesday,
amid hopes for an easing in Sino-U.S. trade tensions and as
investors waited for direction from this week's Federal Reserve
meeting.
U.S. President Donald Trump said a trade agreement looked to
be ahead of schedule on Monday, without detailing the timing,
while the U.S. also said it was studying whether to extend
tariff suspensions due to expire in December. That followed remarks late last week from both U.S. and
Chinese officials saying they were "close to finalising" a deal
that lifted trade-exposed currencies such as the Australian
dollar, while weighing on safe-havens such as the Japanese yen.
The mood cautiously held on Tuesday.
The Aussie AUD=D3 kept its gains to stand just under a
five-day peak at $0.6842, while the greenback held on to its
progress against the yen JPY= to stand at 108.96 yen per
dollar, just below a three-month high hit overnight.
"So far the soundings coming from both the U.S. and China
point to the likelihood of significant progress," said Rodrigo
Catril, National Australia Bank's senior FX strategist.
He added, though, that China's demand for a pullback on U.S.
tariffs remained unresolved and warned talks could easily fail
again if a compromise cannot be reached.
The dollar was steady against the euro EUR= at $1.1096 and
flat against a basket of currencies .DXY at 97.755.
The New Zealand dollar NZD= was 0.2% higher at $0.6361.
China's yuan, CNH= which hit a six-week high in offshore trade
on Monday, before retreating, was steady at 7.0617 per dollar.
Beyond the trade headlines, the major focus this week is the
Fed meeting.
The U.S. central bank is expected to cut rates for a third
time in a row when it concludes its two-day meeting on
Wednesday.
Investors are watching for any indication that further cuts
are likely, with futures pricing suggesting an expectation for
further easing in 2020.
"The forward guidance will be the thing," said Westpac
analyst Imre Speizer in Auckland.
"It still looks like a done deal that they will cut, but
then the risk is that they might characterise that as just one
more insurance move ... the market will have to take out the
pricing it's got for future dates."
The British pound, meanwhile, GBP= nudged lower to
$1.2857, with Brexit hanging in the balance.
The European Union has agreed to delay Britain's exit for up
to three months, but the country is politically paralysed and
overnight parliament rejected Prime Minister Boris Johnson's
third attempt to schedule a Dec. 12 election. Johnson has said he would try again, by a different
legislative route that would only require a simple majority,
rather than a two-thirds majority.