FOREX-Dollar pauses as Fed speakers suggest caution on rate cuts

By Canan Sevgili and Jaspreet Kalra

LONDON, Sept 23 (Reuters) - The U.S. dollar held steady on Tuesday as investors paused to digest hawkish comments from Federal Reserve officials, while awaiting remarks on the economic outlook from Chair Jerome Powell.

The greenback continued its recent see-saw pattern, easing overnight after three sessions of gains on Monday, with the U.S. dollar index =USD last at 97.34.

The euro EUR=EBS was a touch lower at $1.1795 while sterling GBP=D3 fell as much as 0.2% on the day to a session low of $1.3488 immediately after a survey showed British business activity slowed in early September, before tracking back to around $1.35.

Investors are assessing the impact of U.S. President Donald Trump's economic policies on the health of the global economy and the implications for Fed policy ahead of the release of core personal consumption expenditures (PCE) data later this week.

Powell will speak on Tuesday, and his comments could influence interest rate expectations amid mixed signals from the Fed, with some officials favoring gradual cuts to control inflation.

It does not seem likely that Powell will "diverge much from last week's press conference comments, and we think markets may be more interested in hearing other FOMC (Federal Open Market Committee) members' opinions at this stage anyway," said Francesco Pesole, FX strategist at ING.

Money markets are currently pricing in a near-90% chance of a rate cut in October, down slightly from 92% a day earlier, per CME's FedWatch tool. Congressional funding talks this week to avert a government shutdown on September 30 have added to market jitters.

Against the yen, the dollar was flat at 147.73 yen > but weakened 0.4% against Sweden's crown SEK= to 9.31 after the central bank lowered interest rates to 1.75% but said rates were expected to remain on hold for some time.

The Swedish krona gained after the Riksbank delivered a hawkish 25-basis-point rate cut, according to Piotr Matys, senior FX analyst at InTouch Capital Markets.

"With the Fed widely expected to lower interest rates over the next 12-18 months and the easing cycle potentially over in Sweden, the path of least resistance could be skewed to the downside in USD/SEK, unless geopolitical tensions escalate markedly," Matys said.

Meanwhile, markets showed a largely muted reaction to a mixed bag of business survey readings in Europe.

While the data showed that euro zone business activity grew at its fastest pace in 16 months in September, it also pointed to French economic activity contracting the same month at the sharpest rate since April.

"With composite area-wide employment and new orders at the 50.0 mark, we see today's print as broadly signalling modest growth in the next few months before fiscal spending starts to support activity" Goldman Sachs said in a note.

Among other currencies, the dollar sank nearly 4.5% against Argentina's peso ARS= after U.S. Treasury Secretary Scott Bessent said on Monday that "all options" were on the table for stabilising Argentina, including swap lines and direct currency purchases.

The Indian rupee weakened to an all-time record low of 88.7975 against the U.S. dollar on Tuesday, pressured by the U.S. visa fee hike, muted foreign equity flows and a pick-up in hedging.

Gold XAU= hit a fresh record high of $3,790.82 per ounce before paring gains.