×

FOREX-Dollar hits 13-month low as Fed meeting begins; euro near 2-1/2-year high

high@

* Dollar index hits lowest level since June 2016

Euro hovering just below highest point since January 2015

* Investors await U.S. Senate healthcare vote, Fed meeting (Updates to U.S. trading, new throughout, changes dateline, previous LONDON)

By Dion Rabouin

NEW YORK, July 25 (Reuters) - The dollar fell to its lowest level since June 2016 against a basket of major currencies on Tuesday as investors grew wary of the short-term U.S. economic outlook ahead of a meeting by the Federal Reserve and got more bullish on the euro zone.

The euro rose to its highest point since August 2015 and was just a hair below a 2-1/2-year high, boosted by a stronger-than-expected German business survey. The Ifo business sentiment index hit its highest level on record, showing that Germans were "euphoric" about the country's business climate.

The Fed starts a two-day meeting later on Tuesday with no change to interest rates expected. Markets give a less than 50 percent probability of a rate increase before the end of the year, according to CME's FedWatch tool.

With minute expectations for an increase in overnight interest rates, investors will be looking for the U.S. central bank's outlook on trimming its $4.5 trillion in bond holdings, said Eric Nelson, currency strategist at Wells Fargo.

The euro rose to a high of $1.1711, matching its high from Aug. 24, 2015, and just below its highest level since January 2015. That represented an important technical level, Nelson said.

"What you have is markets pushing it toward that level but just waiting on another catalyst to break through," he said. "Whether it's the Fed or U.S. political developments that could be influential, but for now it's just consolidating below that key level."

The euro was last up 0.4 percent to $1.1683.

Investors will be watching the U.S. Senate's vote on a repeal of the 2010 Affordable Care Act, which President Donald Trump and Republicans have vowed to undo. Republicans have a slim majority in the Senate, meaning they can withstand only a few defections within their ranks in the face of united opposition from Democrats.

The uncertain healthcare vote as well as an investigation into Russia's meddling in the 2016 U.S. election and its possible collusion with the Trump campaign has cast a cloud over the Republican president's pledges to cut taxes and ramp up spending, analysts said, weakening expectations for U.S. growth and inflation.

The dollar index earlier fell to its lowest level since June 2016 at 93.638. It has fallen nearly 4 percent over the last month and more than 8 percent this year. It was last down 0.2 percent at 93.811. (Reporting by Dion Rabouin; Editing by Paul Simao)