Shutterstock photo* Dollar falls ahead of FOMC meeting
* Euro, yen gain after Tuesday's falls
* Canadian dollar, Mexican peso buoyed by NAFTA news
By Tommy Wilkes
LONDON, March 21 (Reuters) - The dollar pulled back fromthree-week highs on Wednesday as traders took some profits aheadof the Federal Reserve's first expected rate rise of 2018 andfocused on whether the central bank will indicate three or fourhikes for this year.
With the dollar down, the euro and yen were able to recoversome losses made on Tuesday, when investors had piled into thegreenback.
Elsewhere the Canadian dollar and Mexican peso both madegains after reports that the U.S. administration had dropped acontentious demand related to auto-content, removing a keyroadblock to a deal for a new North American Free-TradeAgreement (NAFTA).
The dollar .DXY fell 0.2 percent against a basket ofcurrencies, after hitting a nearly three-week high on Tuesday.
The U.S. currency has been stuck in a trading range asinvestors wait for clarity on whether the policy-setting FederalOpen Market Committee (FOMC) will forecast four rate hikes thisyear, instead of the median three hikes seen in December'squarterly forecast.
Following the FOMC announcement at 1800 GMT, Jerome Powellwill hold his first news conference as Fed chief at 1830 GMT.
Many analysts are questioning whether the dollar can rallymuch on the back of a more hawkish tone from the FederalReserve, given so many investors still hold a bearish view.
The dollar sold off heavily at the start of the year on betsthat trade and budget deficits would weigh on it, aided bycomments by the U.S. Treasury Secretary that his governmentwelcomed a weaker dollar.
"This FOMC will have to go some to really move the needle onmarket thinking or indeed, to take the dollar out of its currentrange and the FX market out of its mindset," said Kit Juckes,chief FX Strategist at Societe Generale.
The two-year yield US2YT=RR jumped to a near 9-1/2-yearhigh of 2.3324 percent on Tuesday.
As the U.S. currency fell, the euro EUR= firmed 0.4percent to $1.2282, having fallen 0.78 percent on Tuesday andhitting a near three-week low of $1.2240.
Against the yen, the dollar fell 0.2 percent to 106.31 yenJPY= , after Tuesday's gains of 0.41 percent, though tradingwas slow due to a public holiday in Tokyo.
FOCUS ON TARIFFS
The Australian dollar hit a three-month low of $0.7679AUD=D4 on Tuesday but recovered some ground on Wednesday totrade up 0.2 percent at $0.7695.
Australia, a big producer of basic commodities, is among themost vulnerable economies should U.S. protectionism lead to atit-for-tat reprisal from China, a key consumer of severalcommodities. urn:newsml:reuters.com:*:nL1N1R122D
The Canadian dollar gained 0.2 percent to C$1.3041 to theU.S. dollar CAD=D4 , while the Mexican peso gained 0.7 percent MXN=D2 to 18.630 per U.S. dollar, following the report ofsoftening in Washington's stance towards the NAFTA. urn:newsml:reuters.com:*:nL3N1R3196
"Currently there is still a lot of uncertainty on how Trumpwill negotiate new terms for NAFTA, but signs are looking goodafter he has come down significantly from his 'no NAFTA'rhetoric when he first took over as the 45th POTUS," said MingzeWu, FX trader of global payments for INTL FCStone Ltd inSingapore. (Additional reporting by Hideyuki Sano in Tokyo and MasayukiKitano in SingaporeEditing by Catherine Evans) ((thomas.wilkes@thomsonreuters.com))
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