February 28, 2017 / 4:09 AM / 6 months ago

FOREX-Dollar drifts, awaits Trump's stimulus plans

* Dollar moves sideways before Trump's speech to Congress

* Pound struggles after falling on fresh Brexit woes (Updates prices, adds details and quotes)

By Shinichi Saoshiro

TOKYO, Feb 28 (Reuters) - The dollar drifted on Tuesday, with its earlier advance halted by investors taking a wait-and-see approach ahead of U.S. President Donald Trump's closely-watched Congressional address later in the day.

The dollar index was little changed at 101.150 against a basket of key currencies, after posting a modest gain the previous day, when it initially went as low as 100.690.

The U.S. currency rose overnight after Trump sought a "historic" increase in military spending, whetting dollar bulls' appetite before the president's speech to Congress.

"The talk regarding military and infrastructure spending raised expectations towards Trump's speech to the Congress later today, lifting the dollar and Treasury yields," said Shin Kadota, senior forex strategist at Barclays.

The dollar index rallied to a 14-year high soon after Trump won the U.S. elections in November, boosted by hopes that he would introduce large fiscal stimulus and reflationary plans.

But the greenback has sagged lately with the Trump administration yet to hammer out clear specifics, notably on tax reform, and focus has naturally turned to the president's first major address to Congress.

"It remains to be seen how much the dollar can gain from Trump's speech, as specifics regarding tax reforms, which is of key interest to the market, may not be available until March," Kadota at Barclays said.

The currency market could also face turbulence if Trump raises sensitive issues involving U.S. trade partners.

"Obviously if Trump mentions any specific countries, their currencies will be affected. Countries likely to attract his attention are China, Germany, Japan and Mexico, which all have large trade surpluses versus the United States," said Daisuke Karakama, market economist at Mizuho Bank.

"He has mentioned China and Japan quite often as of late, so dollar/yen is likely to be affected the most if he speaks about these countries."

The greenback was little changed at 112.660 yen after rising 0.7 percent overnight, when it had earlier plumbed an 18-day low of 111.920.

The euro was flat at $1.0586, having come off from a one-week high of $1.0631 scaled the previous day.

A slight ebb in concerns towards the French presidential election has helped the common currency, which had sunk to a 1-1/2-month low of $1.0494 last week.

The pound fetched $1.2430 after sliding to a 12-day low of $1.2384 the previous day as talk of another possible Scottish independence vote added to fears about Britain's future as it prepares to leave the European Union.

The Australian dollar edged up 0.1 percent to $0.7682 , confined to a tight $0.7688-0.7668 range. (Editing by Shri Navaratnam and Jacqueline Wong)

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