Shutterstock photo* Euro supported on changing ECB view
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
Though a quarter point hike -- its sixth since the Fed beganraising interest rates in late 2015 -- is baked into marketprices, investors are keen to hear what officials have to say onthe future trajectory of rates.
Markets expect two more rate hikes after Wednesday for theremainder of the year, although analysts warn that if a majorityof Fed policymakers forecast a total of four increases this yearin their "dot plot" projections then the dollar could gain.
"Only a confident sounding outlook wouldn't shake the dollarout of its ranges as there seems to be more structural headwindsat play, but if we see many voices leaning towards four ratehikes, that might be a game changer in the short term," saidRichard Falkenhall, senior FX strategist at SEB.
The dollar .DXY edged 0.15 percent higher against a basketof currencies to 89.91, partially reversing a 0.5 percent dropthe previous day thanks to a relief rally in sterling after atransition deal was announced and the euro's bounce.
On Tuesday, the single currency EUR=EBS was consolidatinggains at $1.2339 against the dollar.
The common currency had drawn strength on Monday from asource-based Reuters report that ECB policymakers are shiftingthe focus of their debates.
Policymakers are comfortable with market forecasts,including for a rate hike by mid-2019, and the debate isincreasingly about the steepness of the rate path thereafter, assome want future expectations contained, given the slow reboundin inflation, five sources with direct knowledge of thediscussion told Reuters. urn:newsml:reuters.com:*:nL8N1R132B
On technical charts, the dollar seems to have found strongsupport in the 105.00 to 105.50 yen area, said Masashi Murata,currency strategist for Brown Brothers Harriman in Tokyo.
He added that the dollar's yield advantage over the yencould also help bolster the greenback.
"Once Japan's new financial year starts (in April), Japaneseinstitutional investors are likely to become active in foreignbond investments," Murata said, referring to the possibilitythey will take on foreign-exchange risk in search of betterreturns abroad.
Still, some traders saw limited upside potential for thedollar, with the yen seen supported by signs of a retreat ininvestor risk appetite.
"It's pretty easy to stay short dollar/yen in thisenvironment given the risk aversion," said Stephen Innes, headof trading in Asia-Pacific for Oanda in Singapore.
The yen is a traditional safe-haven currency that tends toattract demand in times of market turmoil.
The dollar was trading 0.26 percent higher against the yen. JPY=EBS (Reporting by Saikat Chatterjee; Additional reporting byMasayuki Kitano in TOKYO) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))
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