Dollar dips in London

The dollar dipped on Tuesday with markets anticipating the US Federal Reserve will keep policy unchanged, but wary of any upside surprises. The policy-setting Federal Open Market Committee was expected to reiterate its vow to keep interest rates very low for an "extended period", with the market focused on the Fed's assessment of the economic outlook.
By 1128 GMT, the dollar index, a gauge of its performance against six major currencies, was down 0.3 percent at 80.044, with near term resistance seen around 80.85, its March 10 high. Another focus was whether the Fed would begin laying the groundwork for a shift in the "extended period" language. The vast majority of primary dealers see a change as early as April.
Still, most do not see an interest rate increase until the second half of this year. "The market looks about right in pricing November as the start of the Fed tightening cycle, but the prospect that excess liquidity is withdrawn earlier suggests the risk to US yields and the dollar remains to the upside," said Chris Turner, head of FX strategy at ING.
The euro was up 0.3 percent at $1.3715. The single currency touched session highs against the dollar and yen after data showed German ZEW institute's economic sentiment index came in higher than expected. Concerns about an immediate meltdown over Greece's massive debt have eased as eurozone finance ministers on Monday agreed on a plan to help Greece if needed. But with little known about the plan's details, underlying sentiment toward the euro remained cautious.
"Only a complete plan, which defines not just the aid payments but also the conditions it is linked to, the control mechanisms and the sanctions to be taken in case the conditions are breached, would have the potential of causing a sustainable correction in euro/dollar," Commerzbank analysts said in a note. Against the yen, the dollar rose 0.2 percent to 90.68 yen, while the euro gained 0.5 percent to 124.37 yen.
The yen has come under pressure on speculation the Bank of Japan is leaning towards monetary easing steps this week, but that was partly offset as Japanese firms repatriated funds ahead of the financial year-end on March 31. The BoJ ends its two-day meeting on Wednesday and is likely to announce more easing measures, like boosting the size or duration of special fund-pumping operations. The Australian dollar was up 0.2 percent against the dollar at $0.9160 after Reserve Bank of Australia policy meeting minutes showed it expected to keep hiking rates gradually towards normal levels.