4 Min Read
* Wait-and-see mood before expected Fed hike limits movements
* European currencies kept under pressure by political risks
* 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 (Reuters) - The dollar inched up in calm markets on Tuesday, with investors largely shying away from putting on big new bets ahead of Wednesday's Dutch elections and expected interest rate rise from the U.S. Federal Reserve.
The euro, which hit a five-week high on Monday above $1.07 on expectations the European Central Bank is moving towards winding back its stimulus programme, fell 0.25 percent to $1.0627 on caution ahead of the Dutch vote. That extended falls the previous day on comments by ECB officials that were seen as relatively dovish.
Sterling slipped as much as 0.9 percent to $1.2110, its lowest in eight weeks, on worries about a possible second Scottish independence referendum and the triggering of Article 50, which will formally begin the negotiations that will take Britain out of the EU.
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.
"Usually the last 24 hours before the Fed meeting you enter this period where markets don’t move at all anymore, but it seems like with the Fed meeting and the Dutch elections, that has started 48 hours in advance," said Constantin Bolz, head of currency strategy at UBS Wealth Management in Zurich.
The Netherlands will vote on Wednesday in an election that is seen as a fresh test of the anti-immigrant, populist politics that swept across the West in 2016.
Polls suggest the government may lose about half its seats while the anti-Islam Party for Freedom (PVV) party of Geert Wilders surges. Though Wilders has virtually no chance of winning enough seats to form a government, a PVV win would 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.
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 Catherine Evans)