FOREX-Dollar firm in countdown to Fed verdict, pound struggles

* Dollar caught in narrow range ahead of Fed's policy
verdict
* Fed seen cutting rates by 25 bps, focus on future policy
path
* Sterling catches a breather after fall, still down 4.3% in
July
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, July 31 (Reuters) - The dollar held firm on
Wednesday, as a wait-and-see mood prevailed, with traders
looking ahead to the outcome of the Federal Reserve's meeting
later in the day when policymakers are expected to cut interest
rates for the first time since 2008.
With the Fed expected to reduce its key rate by 25 basis
points (bps), the main focus is on whether it will leave the
door open for further policy easing to insulate the world's
largest economy from slowing global growth and the fallout from
trade conflicts.
"The Fed will likely try and not dash the prospect of a
future rate cut held by the markets. But at the same time
Chairman (Jerome) Powell is certainly not in a position to
promise an upcoming cut, so he is expected to keep his wording
as vague as possible," said Yukio Ishizuki, senior currency
strategist at Daiwa Securities.
"Any vague policy references would provide the dollar with
an extra lift as it would further temper excessive easing
hopes."
CME's FedWatch Tool shows 78% of traders pricing in a 25 bp
cut. But the remaining 22% still see a deeper 50 bp easing as a
possibility.
The federal funds rate is currently set in a range of 2.25%
to 2.50%. Futures traders have priced in a full percentage-point
drop by the end of next year.
The dollar index .DXY against a basket of six major
currencies stood little changed at 98.055 after pulling back
from a two-month high of 98.206 touched on Tuesday.
The greenback was flat at 108.575 yen JPY= and the euro
EUR= was little changed at $1.1154. The Bank of Japan (BOJ) on
Tuesday refrained from expanding stimulus but committed to doing
so "without hesitation" if a global slowdown jeopardises the
country's economic recovery. "It was natural for the BOJ to preserve its remaining
ammunition when currencies, the most important factor impacting
its policy, are stable," said Daisuke Karakama, chief market
economist at Mizuho Bank.
"But if the Fed and the ECB both cut rates in September, it
might become difficult for the BOJ to weather the situation by
merely tweaking its policy language."
The pound, which has tumbled this week as investors rushed
to factor in the possibility of Britain leaving the European
Union without a deal, managed to stabilise somewhat.
Sterling GBP=D4 was a shade firmer at $1.2153, crawling
back from a 28-month trough of $1.2120 plumbed on Tuesday.
Troubles for the currency, which has lost 4.3% in July, were
still seen to be far from over as Britain's new prime minister
Boris Johnson took over with the explicit agenda of pulling the
country out of the EU by Oct. 31, whether transitional trading
agreements are in place or not.
The Australian dollar managed to crawl back from a six-week
low and edged up after data showed that the domestic second
quarter consumer price index (CPI) rose at a slightly faster
pace than expected. The Aussie AUD=D3 was up 0.25% at $0.6889 after brushing
$0.6832 earlier, its lowest since June 19.
The New Zealand dollar, in contrast, fell after a survey
showed the country's business mood fell to an 11-month low in
July, adding to expectations for a rate cut next week.
The kiwi NZD=D3 slipped 0.3% to $0.6594.