Dollar falls against euro and other currencies ahead of Fed

NEW YORK (Reuters) - The dollar lost ground against the euro and a basket of currencies on Tuesday as expectations that U.S. monetary authorities reiterate their pledge to maintain very low borrowing costs for a long time.

The Federal Open Market Committee, responsible for formulating monetary policy is expected to announce its decision at about 1415 local time (1815 GMT), where a majority is expected to leave rates near zero and repeat the conditions that obliged to maintain " exceptionally low "for a" prolonged period ".

Investors will focus on what the Fed says about the economic outlook and whether there will be more dissidents who want to withdraw the term "prolonged period" following recent economic data showed that U.S. consumers are buying more and that companies are willing to hiring again.

"What we anticipate is that the Fed will take a slightly more optimistic outlook for the U.S. economy, but also will keep their language intact and give no sign of an early rate hike," predicted Brian Dolan, chief strategist Forex.com currency.

"This combination will be positive for the risk," he added.

Interest rates close to zero in the U.S. have pressured the dollar in recent months as investors are indebted in the greenback and using the funds to buy higher-yielding currencies and riskier, as the Australian dollar.

The dollar index, which measures its performance against a basket of six currencies of reference, down 0.4 percent to 79.969, with a short-term resistance around 80.85, its highest March 10.

Another important issue is whether the Fed will begin to prepare the ground for a change in the phrase "prolonged period". The vast majority of primary dealers see a change from April.

However, most do not see increases in interest rates until the second half.

"The market is looking at November as the beginning of the cycle of Fed tightening, but the prospect of excess liquidity is withdrawn before suggests that the risk to U.S. bond yields and the dollar remains up," said Chris Turner, head of FX strategy ING.

The euro rose 0.4 percent to $ 1.3726, but hit a high against the dollar and the yen after the confidence index German ZEW economic institute was higher than expected.

Against the yen, the dollar was little changed at 90.48 yen while the euro gained 0.4 percent to 124.25 yen.

The yen has been under pressure from speculation that the Bank of Japan is preparing to take further measures for monetary easing this week, which was partially offset by remittances from Japanese companies by the end of the financial year to 31 March.

(Additional reporting by Tamawa Desai in London)