FOREX-Risk of Fed surprise keeps dollar well bid

    * Dollar has been buoyed as cautious investors close shorts
    * Currency market volatility wallows at 16-month low
    * Traders watching for clues on timing of Fed tapering

    By Kevin Buckland
    TOKYO, June 15 (Reuters) - The dollar hovered near
multi-week highs on Tuesday, drawing support from traders wary
of a surprise from the U.S. Federal Reserve which is set to
begin a two-day policy meeting.
    Markets expect no immediate changes to monetary policy, but
with positioning heavily loaded against the dollar, investors
are leery of any shift in tone that could spark a rally.
    The euro perched at $1.2120, just above a
one-month low of $1.2093 it hit last week. The yen hit
a seven-session low of 110.15 per dollar. The U.S. dollar index
 held near the top of its recent range at 90.512.
    "The Fed is confronted with a balancing act of walking a
tight-rope between transition and tantrums," said Vishnu
Varathan, head of economics and strategy at Mizuho in Singapore.
    "(A) solid U.S. economic recovery flanked by inflation at a
13-year high demands some kind of acknowledgement, if not
response," he said. "The euro, Aussie, Yen and Singapore dollar
(levels) all point to cognisance about upside dollar risks."
    The Australian dollar has traded sideways this
year, despite rapid rises in commodity prices, as markets have
focused on U.S. data and the Fed to drive the U.S. dollar. 
    The Aussie slipped marginally to $0.7705 on Tuesday after
minutes from the Reserve Bank of Australia's last meeting showed
the bank was prepared to keep buying bonds even though the
economy has recovered its pre-pandemic output. 
    The kiwi dollar and sterling were also
settled in narrow ranges as market volatility gauges
 tick down to their lowest levels since the pandemic
began roiling markets in February and March 2020.
    Ahead of the Fed's statement and news conference on
Wednesday, markets will eye U.S. retail sales and a
manufacturing survey later on Tuesday - though mostly as a means
of understanding the economic pressure on policymakers.
    So far Fed officials, led by Chair Jerome Powell, have
stressed that rising inflationary pressures are transitory and
ultra-easy monetary settings will stay in place for some time to
come, although recent economic data has raised concerns that
price pressure could force an earlier stimulus withdrawal.
    "While Powell will tread carefully, I expect that the Fed is
warming to a more open discussion about tapering, to be formally
announced in the September meeting," Chris Weston, head of
research at broker Pepperstone in Melbourne, said in a note to
     "Any view that cements a formal announcement in September
should be modestly USD bullish, but the risks are symmetrical as
Powell will be keen to not hurt financial conditions," he said.
    Nearly 60% of economists in a Reuters poll expect a tapering
announcement in the next quarter.
    In cryptocurrencies, bitcoin was able to steady
above $40,000 on Tuesday and is approaching its 200-day moving
average - finding support from the promise of fresh investment
from major backer MicroStrategy and from Elon Musk.
    Tesla boss Musk on Sunday flagged that the carmaker
could resume transactions using the token if miners can use
cleaner energy to process them.
    Ether also got a small lift in sympathy with its
bigger rival, and broke above its 20-day moving average to
    Currency bid prices at 418 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar                  $1.2124        $1.2121     +0.03%         -0.77%      +1.2126     +1.2114
 Dollar/Yen                   110.0650       110.0650    +0.00%         +6.56%      +110.1450   +110.0600
 Euro/Yen         <EURJPY=EB  133.45         133.39      +0.04%         +5.14%      +133.5200   +133.3600
 Dollar/Swiss                 0.8994         0.8995      +0.02%         +1.70%      +0.9001     +0.8994
 Sterling/Dollar              1.4111         1.4105      +0.05%         +3.29%      +1.4117     +1.4100
 Dollar/Canadian              1.2138         1.2149      -0.09%         -4.68%      +1.2150     +1.2137
 Aussie/Dollar                0.7711         0.7712      -0.01%         +0.24%      +0.7716     +0.7696
 NZ                           0.7153         0.7144      +0.15%         -0.36%      +0.7157     +0.7132
 Dollar/Dollar All spots
Tokyo spots
Europe spots 
Tokyo Forex market info from BOJ

 (Reporting by Kevin Buckland in Tokyo and Tom Westbrook in
Singapore; Editing by Kim Coghill)