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FOREX-Dollar edges higher as traders await Fed rate move

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(Updates prices, market activity, comments to U.S. market open; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, June 14 (Reuters) - The dollar edged higher against a basket of currencies on Tuesday, to scale a fresh two-decade high, as traders braced for an aggressive rate hike from the U.S. Federal Reserve this week to try to curb inflation.

Rising expectations that the Fed will raise interest rates by more than previously forecast unsettled investors on Monday and sent the S&P 500 tumbling to confirm a bear market and intensifying fears over the economic outlook.

There is a nearly 90% expectation for a 75 basis-point increase at the conclusion of a two-day Fed meeting on Wednesday, according to Refinitiv's Fedwatch Tool.

"It's going to be very difficult for the Fed to out-hawk markets at this point, given the level of expectations going into tomorrow," said Karl Schamotta, chief market strategist at business payments company Corpay.

The U.S. Dollar Currency Index, which tracks its performance against six other major currencies, was up 0.1% at 105.27, after climbing to as high as 105.32, its strongest since December 2002.

With inflation and growth-related concerns plaguing economies around the world, the greenback has benefited from safe haven flows in recent weeks and months.

"The U.S. dollar remains the best of a bad bunch in FX land," said Michael Brown, head of market intelligence at payments firm Caxton in London.

"Today's trade is a pretty classic pre-Fed calm, though I doubt it will last, with a hawkish Fed likely to provide the required catalyst for a further leg higher (for the dollar)," Brown said.

With risk appetite weak, the Aussie was 0.56% lower against the greenback, while the kiwi was down 0.54%.

Against the yen, the dollar was about flat at 134.56 yen.

The Japanese currency's weakness - it fell to its lowest level since 1998 against the dollar on Monday - has prompted comments by Japan's top government spokesperson that Tokyo is concerned about its sharp fall and stands ready to "respond appropriately" if needed.

"Japanese officials' attempt to jawbone the currency are bearing fruit," Corpay's Schamotta said.

Sterling fell 0.86% to $1.203, its lowest level since March 2020, after Scotland's First Minister Nicola Sturgeon said she was set to share details on plans for a new independence referendum. British Prime Minister Boris Johnson and his Conservative Party, which is in opposition in Scotland, strongly oppose a referendum.

Bitcoin slipped to a new 18-month low, as major crypto lender Celsius Network's freezing of withdrawals and the prospect of sharp U.S. interest rate rises shook the volatile asset class. Bitcoin was last down 4.5% at $22,163.83.

(Reporting by Saqib Iqbal Ahmed; Editing by Susan Fenton)