LONDON (Reuters) - The dollar was broadly lower on Wednesday on expectations the U.S. Federal Reserve would emphasize it was in no hurry to raise rates, while the euro was buoyed ahead of the results of the European Central Bank's first-ever offer of cheap one-year funds.
The euro was also helped by comments from ECB officials hinting euro zone interest rates would not fall further.
Markets anticipate strong demand for the ECB's one-year refinancing operation, which offers funds at 1 percent.
A poll conducted by Reuters on Monday showed money market traders expect the ECB to allot a median 300 billion euros at the refi auction.
A much higher allotment could be euro negative, as it would indicate additional liquidity going into the banking system, and possibly highlight strains in the money market.
"Stronger-than-expected demand would represent a significant monetary stimulus, potentially place downward pressure on euro area yields and may be a short-term negative for the euro," said analysts at Barclays Capital.
But the cheap funding should help the ailing economy, so it would ultimately be positive for the common currency, others said.
"The euro bears will say the extra liquidity is euro negative, but ultimately the operation is aimed at improving funding to the euro zone," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
Some traders added the euro was boosted on Tuesday as market players raised euro-denominated collateral to participate in the tender.
The euro also broke its downtrend line from early June, after holding the 38.2 percent retracement of its rise from April, indicating many people still expect medium-term appreciation of the euro and other currencies against the dollar to fresh highs in this cycle.
By 0741 GMT (3:41 a.m. EDT), the euro was up 0.2 percent at $1.4112 after hitting a session high of $1.4138, its highest since June 11, according to Reuters data.
WATCHING THE FED
The Fed began its two-day meeting on Tuesday, and many expect policymakers will want to play down expectations of higher interest rates that have built in the market, for fear these will choke an economic recovery.
That pushed the dollar broadly lower, with the dollar index at its lowest since mid-June. It was last down 0.2 percent at 79.61. .DXY
Currencies such as the Australian dollar, which have been favored as recovery plays against the dollar and yen, leapt 1 percent or more on Tuesday as the greenback lost favor.
