(Refiles to drop extraneous word from 2nd paragraph)
* Dollar index near 3-yr lows, euro hits 16-mth high
* Fed expected to keep easy money policy unchanged
* Sterling races up after Q1 UK GDP data
(Adds comment, details)
By Naomi Tajitsu and Anirban Nag
LONDON, April 27 (Reuters) - The dollar fell against most
currencies on Wednesday and looked set to stay under pressure on
expectations the U.S. Federal Reserve will reaffirm its
ultra-loose monetary policy for the coming months.
Sterling neared 17-month highs against the greenback after
an in-line reading of first quarter UK growth, with investors
who had sold the pound on anticipation of a softer figure being
forced to buy it back. [].
But they extended bearish bets against the dollar, keeping
the euro <EUR=> near a 16-month high of $1.4715 while the Swiss
franc scaled its strongest point on record at 0.8669 <CHF=>.
Analysts say the current dollar-selling momentum may take
the euro towards $1.50 as investors focus on policy divergences
between central banks on a tightening path and those keeping
rates low.
Monetary policy will take centre-stage ahead of a rate
announcement by the Fed later in the day. The U.S. central bank
is widely expected to keep rates near zero and signal that it is
in no hurry to scale back its massive support for the economy.
Given that the European Central Bank has started to raise
rates, and others like the Australian central bank are in the
midst of a tightening cycle, analysts said the Fed's stance will
keep the dollar weak as investors choose higher-yielding
currencies.
"It's clear Fed monetary policy is the reason for dollar
weakness. If we don't get any hint that the Fed will normalise,
the dollar will continue to stay under selling pressure," said
Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.
The euro was up 0.2 percent at $1.4672. Traders said Asian
and Middle East sovereign accounts were looking to buy the euro
on every dip. Offers for the euro <EUR=> are said to be around
$1.4750, with system stops cited below $1.4620.
Technical analysts say the euro faced immediate resistance
around $1.4720, a level hit when it briefly spiked up in late
2008, and $1.4775, the top of a weekly trendline channel drawn
from lows hit in February and April.
Market participants say a sustained break above this level
would open the way to the psychologically key $1.50.
Commonwealth Bank of Australia on Wednesday revised its
forecasts for the U.S. dollar lower. The bank now expects the
euro to rise to $1.50 by end-September, having earlier forecast
the euro to fall to $1.42.
"We now believe the USD won't recover until the Fed formally
changes their monetary policy guidance from an easing bias to a
tightening bias," said chief strategist Richard Grace.
YEN ALSO FALLS
The dollar <.DXY> skidded to a three-year low of 73.493
against a currency basket, down close to 10 percent from its
peak in January, and many traders expect the index to eventually
reach its all-time low, hit in 2008, of 70.698.
The greenback hovered around 0.8760 Swiss francs <CHF=>,
having fallen as low as 0.8669 in Asian trade, while the
Australian dollar shot up to a 29-year high of $1.0853. <AUD=D4>
The pound <GBP=D4> also rose more than a full U.S. cent to
$1.6582 after data showed the UK economy expanded 0.5 percent in
January-March from the previous quarter.
The yen was one of the few currencies against which the
dollar managed to gain, rising 1 percent on the day to 82.36 yen
<JPY=>. It tripped past some light stops above 82 yen on steady
buying from real money accounts and model funds.
The euro also rose more than 1 percent on the day to around
120.70 yen <EURJPY=R>, its highest in nearly two weeks.
The yen came under pressure after S&P downgraded its ratings
outlook on Japan's sovereign debt. It warned the huge cost of
last month's devastating earthquake would hurt already weak
public finances unless the government raised taxes.
(Editing by Toby Chopra, John Stonestreet)
