FOREX-Dollar slips, lacking direction before Fed meeting

Updates prices, adds comment and detail

By Elizabeth Howcroft

LONDON, March 16 (Reuters) - The dollar slipped slightly on Tuesday, but currency markets generally lacked direction as market participants waited for the U.S. Federal Reserve meeting to set the tone for markets.

At the Fed's two-day monetary policy meeting, policymakers are expected to forecast that the U.S. economy will grow in 2021 at its fastest rate in decades, with unemployment falling and inflation rising, but are not considered likely to change their monetary policy. nL1N2L82OT

The dollar index held steady overnight then rose as European markets opened, before slipping to 91.807 at 1237 GMT, down by less than 0.1% =USD.

"Markets are in this flux period where they’re gripping on to marginal bits of information, but there’s nothing to define a new broad dollar trend until we get some more colour from the Federal Reserve tomorrow," said Simon Harvey, FX analyst at Monex Europe.

"How the Fed delivers their message tomorrow is going to be telling for the dollar," he said. “You’re going to start getting the first glimpses of how they interpret an average inflation target.”

Investors will also pore over whatever the Fed has to say about the rise in yields, which have gained on bets that economic growth and inflation could prompt a faster-than-expected normalisation of monetary policy.

"Anything less than a strong message of the Fed being very committed to maintaining favourable financial market conditions will likely see USD advance further," wrote MUFG FX strategists in a weekly note on Friday.

U.S. Treasury yields slipped slightly, below their recent peaks. nL1N2LE0VF

U.S. retail sales fell more than expected in February but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households. nL1N2LD1V6

The euro was at $1.1933, flat on the day EUR=EBS.

It has held below $1.20 since March 5, hurt by expectations for a slower economic recovery in Europe compared with the UK and the United States due to problems rolling out coronavirus vaccines.

Germany, France and Italy said on Monday they would suspend AstraZeneca COVID-19 shots after several countries reported possible serious side-effects, but the World Health Organization said there was no proven link and people should not panic. nL1N2LD0O2

The Australian dollar - which is seen as a liquid proxy for risk - was down 0.1% at 0.77465 AUD=D3. The New Zealand dollar was also little changed NZD=D3.

Reserve Bank of Australia minutes said that the recent increase in commodity prices was unlikely to translate into a sustained rise in inflation and that members did not agree with the aggressive market pricing. nRUAFEEH9E

Britain's pound was down around 0.2% at $1.3866 GBP=D3. Economic growth in the UK will fall by 4% in the first quarter of 2021 compared with the first quarter of 2020, the governor of the Bank of England said. nR1N2KO028

The pound was also being hurt by the European Union launching legal action against Britain over a change in trading arrangements that Brussels says breach the Brexit divorce agreement. nW1N2KW02RnS8N2DU0AN

Japan's yen was lower against the U.S. dollar, changing hands at 108.955 JPY=EBS. The Bank of Japan's two-day policy meeting ends on Friday. The central bank's governor said on Tuesday that it was important to keep long-term interest rates "stably low". nL4N2LD0MTnL4N2LE1M1

Elsewhere, Bitcoin fell to $54,764.30, having dropped from its latest record high of $61,781.83 on Saturday BTC=BTSP.

(Reporting by Elizabeth Howcroft, editing by Larry King and Steve Orlofsky)

((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))