Dollar slips from one-week high, all eyes on Fed

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY (Reuters) - The dollar came off a near one-week high versus a basket of major currencies on Wednesday, but its losses were limited as the market counted down the hours to a likely hike in U.S. interest rates.

The Federal Reserve is widely expected to deliver its first rate increase in nearly a decade later in the day. But after more than a year of anticipation, investors are more eager to know how quickly the central bank will tighten following the initial rate adjustment.

"If ever there was going to be a day of twiddling thumbs ahead of key event risk, surely today is the day," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

The dollar eased 0.1 percent versus a basket of major currencies to 98.075 . On Tuesday, the dollar index rose 0.6 percent and touched a peak of 98.292, its highest level since Dec. 9.

Against the yen, the greenback inched up 0.1 percent to 121.71 yen .

The euro edged up 0.1 percent to $1.0941 . On Tuesday, the euro slipped around 0.6 percent, retreating from a six-week high of $1.1060.

"With USD positioning now substantially reduced and the USD trading at more attractive levels versus key G10 currencies, we think the USD is more likely to gain immediately in the aftermath of Fed tightening," analysts at BNP Paribas wrote in a note to clients.

This month's drop in the dollar versus yen and the euro's rise against the dollar suggest that short-term players have pared back their long dollar positions, said a trader for a Japanese bank.

"Longer-term players are probably firmly long the dollar, but it seems like there has been a lot of position adjustment by short-term speculators," the trader said.

The Australian dollar edged up 0.2 percent to $0.7208 , regaining some footing after having shed 0.7 percent on Tuesday.

Anyone looking for an excuse to sell the Aussie found one in comments from Reserve Bank of Australia Governor Glenn Stevens.

In an interview with the Financial Review published on Wednesday, Stevens said he expected the currency could weaken further in sympathy with falling commodity prices.

Stevens, though, gave an upbeat assessment on the economy, setting the bar high for any further cuts in rates.

(Editing by Dan Grebler and Ryan Woo)