FOREX-Dollar firms in cautious trade before Fed statement

(Updates prices, adds comment, changes byline, dateline, previous LONDON)

* Dollar index off 11-year high ahead of Fed statement

* Impact on U.S. stocks and corporate profits in focus

By Daniel Bases

NEW YORK, Jan 28 (Reuters) – The U.S. dollar made a tepid advance against the euro and the Swiss franc on Wednesday but fell against the yen before a monetary policy statement from the Federal Reserve.

Economists polled by Reuters expect the Fed not to do anything that will deviate from a mid-year interest rate rise trajectory, even as U.S. corporations blame the recent rally in the dollar’s value for hitting corporate profits.

The Fed is expected to release a statement at 2 p.m. EST (1900 GMT) following a two-day meeting.

Dollar strength and expectations of yet more gains have become the dominant trade, although it has taken a pause since Friday’s 11-year high for the greenback.

The U.S. currency fell on Tuesday after weaker-than-forecast corporate earnings reports and durable goods data made some traders and investors nervous that the Fed could turn more cautious in its guidance on rate rises, given that plunging oil prices have cooled inflationary pressures.

“This is not so much about the Fed, but whether the U.S. economy can live with a stronger dollar,” argued David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York.

“This is why, notwithstanding the Fed, the bottom line is that for the dollar to resume its upside it needs to take a break. The U.S. stock market which has been supporting the dollar rally is starting to struggle,” he said.

In late morning trade, the dollar index was up 0.26 percent to 94.262, recouping some losses from Tuesday, its biggest single-day decline since early October.

The euro fell 0.40 percent to $ 1.1325 on the EBS trading platform. The dollar rose 0.14 percent to 0.90385 Swiss franc. The greenback slipped 0.08 percent to 117.75 yen.

While the impact of a strong dollar on U.S. corporate earnings from foreign operations is now coming to the fore, one veteran strategist warned investors not to overplay the idea that it will necessarily affect the Fed’s thinking.

“Since U.S. corporations seem to feel that ‘What’s earned abroad, stays abroad’, it probably has almost no knock-on impact on U.S. operations through remitted or retained foreign earnings,” Steven Englander, global head of G10 FX strategy wrote clients.

“These translation losses can be large for firms that have not revenue hedged, and will be reflected in equity prices, but in the first instance they will have no impact on U.S. production, and the Fed will not care,” he wrote.

(Additional reporting by Anirban Nag in London; Editing by James Dalgleish)