* Fed cuts rate by 25 bps as expected but signals a possible pause
* Chile cancels APEC summit where U.S.-China trade deal expected
* BOJ seen keeping policy steady, decision due later Thursday
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tomo Uetake
TOKYO, Oct 31 (Reuters) - The dollar dipped against a basket of major currencies on Thursday, reversing earlier gains, after the Federal Reserve cut interest rates for the third time this year but signalled its rate-cut cycle might be at a pause, as was broadly expected.
In lowering its policy rate by 25 basis points to a target range of between 1.50% and 1.75%, the U.S. central bank dropped a previous reference in its policy statement that it “will act as appropriate” to sustain the economic expansion - language that was considered a sign for future cuts.
Still, lack of an explicit signal from the Fed that it is done with easing for now was perceived to be less hawkish than expected, helping to drive the dollar down.
“The new, slightly shorter, statement tries to keep their options open and puts them back into a data-dependent mode, but circumstances could mean that they have less optionality than they think,” said Tim Foster, portfolio manager at Fidelity International in London.
The dollar index rose to 98.00 as Fed Chairman Jerome Powell spoke about its decision, the highest since Oct. 17, before slipping. The index was last down 0.3% at 97.37, its lowest level in a week.
The euro last changed hands at $1.1167, while the greenback last traded at 108.66 yen.
The dollar also temporarily dipped on news that Chile has withdrawn as host of an APEC trade summit in November where the United States and China had been expected to take major steps toward ending a 15-month-old trade war.
Optimism that the U.S. and China will soon agree on a partial deal has boosted risk sentiment this week.
Sterling edged up after British Prime Minister Boris Johnson won parliamentary approval on Wednesday to hold a general election in December, though moves were limited as large currency options expiring this week curbed volatility.
The pound was trading at $1.2921, a shade higher on the day.
The Australian and New Zealand dollars firmed as investors scaled back wagers on local interest rate cuts after the Fed indicated it might be pausing in its easing campaign.
The Aussie reached a three-month top at $0.6918, having been as low as $0.6849 at one stage on Wednesday, and the kiwi dollar popped up to $0.6420, leaving behind Wednesday’s low of $0.6335.
Westpac economists changed their call on New Zealand interest rates, now expecting no cut at the Reserve Bank of New Zealand’s (RBNZ) policy meeting on Nov. 13. Investors have also been lengthening the odds on a move from the Reserve Bank of Australia (RBA) in the near term.
The Bank of Japan will likely hold off on expanding stimulus later in the day, as calm markets and easing U.S.-China trade tensions take the heat off the central bank from using its limited monetary arsenal to fight the risk of recession. (Reporting by Tomo Uetake; Editing by Richard Borsuk)