(Updates prices throughout, adds analyst quote and brent crude

settlement)

* Markets await central bank indications on the rate

outlook

* Euro rises against the dollar

* Australian dollar rises after central bank rate hike

* Dollar index falls for second straight session

By Chibuike Oguh

NEW YORK, March 17 (Reuters) - The U.S. dollar was lower

against peer currencies for the second straight session on

Tuesday, reflecting market positioning ahead of major central

bank interest rate decisions this week.

The dollar had reached a 10-month high as the Middle East

conflict and rising oil prices prompted investors to seek safety

in U.S. assets.

The U.S. Federal Reserve will announce its policy decision on

Wednesday, with the European Central Bank, the Bank of England

and the Bank of Japan following a day later. They are all

expected to keep rates unchanged although traders will be

looking out for commentary about inflation and economic outlook

amid the U.S.-Israeli war on Iran.

Expectations for Federal Reserve easing have also been

scaled back, with markets now assigning about 25 basis points of

cuts this year. Traders are pricing in almost two European

Central Bank rate hikes in 2026, a sharp shift from the roughly

50% chance of a cut seen before the conflict began.

The dollar was down 0.40% to 0.7846 against the Swiss franc

, on track for the second straight day of declines.

The dollar index had hit 100.54 on Friday, its

highest level since May 2025. It has eased from that peak in the

last two sessions, and was last down 0.31% to 99.55.

"I think this is mostly market positioning but I am

beginning to detect a subtle change in sentiment although we

wouldn't know for sure until we get to the other side of the

Federal Reserve meeting," said Marc Chandler, chief market

strategist at Bannockburn Global Forex LLC. "It seems to me that

since the war began, the dollar was bought on dips and now I

think the dollar is being sold on rallies."

Brent crude futures remained above $100 a barrel on

worries about supply, with the Strait of Hormuz mostly shut.

They have risen more than 40% since February and settled up 3.2%

to $103.42 per barrel.

Iran renewed attacks on the United Arab Emirates on Tuesday,

causing oil loading at the port of Fujairah to be at least

partly halted after the third attack in four days ignited a fire

at the export terminal. Fujairah is located on the Gulf of Oman,

just outside the Strait of Hormuz.

Fed officials, including Chair Jerome Powell, are likely to be

hawkish and will attempt to forcefully signal to financial

markets to expect a prolonged pause in rate cuts given rising

oil prices and the prospect of higher inflation, Macquarie Group

analysts led by Thierry Wizman said in an investor note.

"They can do this mildly by letting the median 'dot' point

to that single cut in 2026 (confirming the OIS market's

dialed-back projections for rate cuts), or they can do it more

aggressively, by changing the statement to reflect a 'neutral'

policy bias, thus giving itself several more months to consider

a rate cut (or hike) without the pressure of the claim that it

is misleading markets in the event that oil prices stay high and

inflation rises uncomfortably," the analysts said.

The euro was up 0.31% against the dollar at $1.15403 after

dropping to as low as $1.1409 in the prior session, for its

lowest level since August 2025.

AUSTRALIAN DOLLAR RISES AFTER SECOND RATE HIKE

Australia's central bank raised rates for a second straight

month to a 10-month high, undoing two of the three cuts it made

last year and cautioning that risks to inflation have tilted

further to the upside. It was the central bank's most tightly

contested vote since it began disclosing tallies last year, with

the board split 5-4 in favor of the hike.

The Australian dollar rose 0.46% to 0.71040 against the

dollar.

The yen has veered toward the 2024 forex intervention zone

of 161 amid rising oil prices and the Middle East conflict.

Japanese Finance Minister Satsuki Katayama said on Monday and

reiterated on Tuesday that the government was prepared to take

decisive steps against volatility in foreign exchange and other

financial markets.

Bank of Japan Governor Kazuo Ueda said underlying inflation

was accelerating toward the bank's 2% target, stressing that

price rises must be matched by solid wage gains.

The Japanese yen was last up 0.01% against the

greenback to 159 per dollar.