* Dollar higher after midterms, before Fed policy meeting
* Euro hurt by fresh Italy fears
* FX markets quiet, tread water before Fed decision
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (New throughout, updates prices, market activity and comments; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Nov 8 (Reuters) - The U.S. dollar pulled out of its post-election slump, rising modestly on Thursday morning ahead of a Federal Reserve policy meeting at which it is widely expected to hold interest rates steady.
Against a basket of six rival currencies, the dollar index was up 0.15 percent from late Wednesday. The index had fallen in the wake of the U.S. midterm elections, which split power between the two houses of Congress. Democrats’ control of the House of Representatives suggests they will act as a check on President Donald Trump and could block further tax cuts and deregulation.
The greenback has rallied this year since the president’s Republican party pushed through significant tax cuts, and strong economic growth has prompted the Fed to steadily raise interest rates.
The dollar index hit pre-election levels early in North American trade as investors moved their focus to the Fed. The Fed is expected to hold rates steady on Thursday, but the language in the policy statement will be watched closely.
“Today’s Fed announcement may do little to jolt the dollar or wider FX markets, with the central bank widely expected to hold borrowing rates at a range of 2.00 percent - 2.25 percent. Still, the Fed is likely to leave the door wide open to a December rate hike with the U.S. economy keeping in top gear,” wrote Joe Manimbo, senior market analysts at Western Union Business Solutions.
But moves were still muted, as foreign exchange traders cautiously looked for their next cue on the strength of the global economy, despite world stocks racking up their longest winning streak of 2018 on Thursday. The dollar rose 0.17 percent versus the Japanese yen to 113.69. The dollar has gained over the past week against the yen due to divergence in the monetary policies of the U.S. Fed and the Bank of Japan.
The dollar also strengthened by 0.11 percent against sterling as the political and economic risks of a no-deal British exit from the European Union persisted.
Prime Minister Theresa May stepped up attempts to court European support for a draft Brexit deal on Thursday as negotiations enter their final stages. She was due to meet three other EU leaders in Brussels at a NATO dinner on Thursday, and French President Emmanuel Macron on Friday.
Earlier on Thursday, the euro fell after the European Commission cut its forecasts for Italian growth, adding to investor concerns about Italy’s debt and economic outlook. But the single currency retraced those losses and was up from Wednesday’s close, last trading at $1.1434. (Additional reporting by Tommy Wilkes in LONDON)