* European currencies kept under pressure by political risks
* Wait-and-see mood before expected Fed hike limits
* Focus on what kind of message Fed to deliver
* Sterling hits 8-week low
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, March 14 The dollar climbed on Tuesday
ahead of an expected interest rate rise by the U.S. Federal
Reserve, as political risks from Dutch and French elections to
Britain's exit from the EU weighed on European currencies.
The dollar index, which measures the greenback against a
basket of six major peers - four of them European - climbed by a
third of a percent to 101.67.
The euro, which on Monday hit a five-week high above $1.07
on the expectation that the European Central Bank is
moving towards winding back its stimulus programme, inched down
to $1.0644, with dovish comments from ECB officials adding to a
Sterling slipped as much as 0.9 percent to $1.2110,
its lowest in eight weeks, as concerns increased over a second
Scottish independence referendum and the triggering of Article
50, which will formally begin Brexit negotiations.
The Netherlands will vote on Wednesday in an election that
is seen as a test of anti-immigrant, populist politics that
swept across the West in 2016.
Polls suggest the government may lose about half its seats
at the hands of the anti-Islam Party for Freedom (PVV) party of
Geert Wilders. Though Wilders has virtually no chance of winning
enough seats to form a government, a PVV win would nevertheless
send shock waves across Europe.
"The worry is that PVV will do better in Holland on
Wednesday than what's already priced in (and) you've got these
tensions in the UK because of the Article 50 trigger," said BMO
currency strategist Stephen Gallo, in London.
"So you've got a stronger dollar weighing on European
currencies because the political outlook for Europe is so
uncertain right now, and Fed messaging has not helped those
currencies, with speculation that the March hike could be a
hawkish hike," he added.
With a Fed rate increase already seen as a done deal,
investor focus was on what kind of a message the Fed would
deliver after its two-day meeting starting later on Tuesday.
"It is a wait-and-see mood that is mostly prevailing in the
market ahead of the Fed's decision," said Shin Kadota, senior
currency strategist at Barclays in Tokyo.
"Expectations for a hawkish dot plot was a factor that has
pushed up the dollar recently, with hopes for the number of
times the Fed could hike rates this year having increased to
four from three."
The "dot plot" is policymakers' rate projections and
provides a view into their interest rate outlook.
Masashi Murata, senior strategist at Brown Brothers Harriman
in Tokyo, said expectations for four U.S. rate increases this
year look excessive, and that the Fed meeting could help cool
exaggerated policy tightening expectations.
Investors also have their eyes on the Trump administration's
fiscal 2018 federal budget plan, which will be released on
Thursday, and on a meeting of G20 finance ministers and central
bankers in Germany on Friday.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Shinichi Saoshiro in Tokyo, editing by