* Dollar edges up but capped ahead of Fed meeting
* Euro struggles versus dollar near 4-month low
* Sterling hits 1-1/2 year high against euro
By Shinichi Saoshiro
TOKYO, June 16 The dollar edged up against a
basket of currencies in early trade on Monday, drawing mild
support as geopolitical worries hung over the markets, but was
by potentially decisive events such as the Federal Reserve
The dollar index, a measure of the greenback's
strength versus key currencies, edged up 0.1 percent.
The index had gained about 0.3 percent the previous week,
helped by factors including higher U.S. Treasury yields and its
status as a safe haven as conflict in Iraq escalated.
In focus was whether the dollar can gain further should the
Federal Reserve provide new hints on the timing of interest rate
hikes when it concludes its two-day policy meeting on Wednesday.
Currently expectations are for the Fed to begin raising
rates about a year from now, and the dollar is seen benefiting
from any hawkish comments by the central bank.
"Key points are if Fed Chair (Janet) Yellen upgrades her
view on the economic view in light of recent economic indicators
and if the central bank raises its yield forecast, which would
reignite expectations for earlier rate hikes," said Junichi
Ishikawa, market strategist at IG Securities in Tokyo.
"Whether geopolitical risks have any currency impact depends
on how the situation in Iraq and Ukraine impacts the equity
markets, but so far their reaction appears limited," he said.
The euro traded little changed at $1.3537, within
sight of a four-month trough of $1.3503 hit earlier this month
when the European Central Bank eased monetary policy.
Market participants expect the single currency to come under
further pressure against the dollar should the Fed's statements
on Wednesday cause a further divergence in monetary policies
between the ECB.
"We prefer staying short euro versus dollar as the Fed's
constructive view on the U.S. economy would come in contrast to
the ECB's cautious stance on euro area inflation," strategists
at Barclays wrote in a note to clients.
Sterling, which has been boosted recently by the hawkish
approach taken by the Bank of England, was at $1.6976,
in close reach of $1.6995, highest since May 6.
BOE Governor Mark Carney had said on Thursday that interest
rates could rise sooner than financial markets expect, in a
surprisingly stark warning that monetary policy may start to
tighten in less than a year.
The euro fell to as low as 79.68 pence, a trough
not seen since November 2012.
The dollar dipped 0.1 percent to 101.95 yen, pulling
back mildly as Tokyo shares slipped and dampened appetite for
risk assets. The dollar has been caught in a relatively tight
102.80-101.60 range so far this month.
(Editing by Eric Meijer)