* Dollar seen oversold but strong data needed for reversal
* Euro edges higher as German busines morale "euphoric"
LONDON, July 25 (Reuters) - The dollar slumped a more than one-year low against a basket of currencies on Tuesday as investors grew more wary on the short-term outlook although they held off placing more bearish bets ahead of a Federal Reserve meeting starting today.
The Fed starts a two-day meeting later in the day 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.
"I think the dollar looks increasingly oversold," CIBC head of FX strategy, Jeremy Stretch, said in the Reuters Global Markets Forum chatroom.
"In the short term a short term bounce will require a rebound in the data, to support rate expectations and in the absence of a fiscal expansion, that seems increasingly off the agenda until at least early 2018, any short term dollar rallies are likely to be sold into," he said.
On Tuesday, the dollar index fell to its lowest since June 2016 at 93.815. It has fallen nearly 4 percent over the last month and more than 8 percent this year.
By late morning it had recovered to trade flat on the day.
Beyond the outcome of the Fed meeting on Wednesday, investors will be closely watching U.S. advance second quarter growth estimates on Friday to see if the economy is recovering.
The euro rose 0.1 percent to $1.16555 against the dollar. It has gained more than 10.5 percent so far this year and is the best performing G10 currency.
The single currency got a further boost as German business morale hit new high, with sentiment "euphoric", according to the Munich based Ifo economic institute that compiles the data from 7,000 companies in Europe's largest economy.
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(Editing by Louise Ireland)