(Updates prices, adds analyst quote)
* Fed cuts outlook for future hikes to two this year from four
* Dollar index near one-month low, euro close to one-month high
* GBP steady with BOE up next, expected to stand pat
By Lisa Twaronite
TOKYO, March 17 (Reuters) - The dollar was under pressure in Asian trading on Thursday after declining sharply following the Federal Reserve's decision to halve its outlook for U.S. interest rate increases to two from four by the end of this year.
The greenback, under renewed pressure against a resurgent yen, marked a fresh three-week low. Earlier, it had clawed back some lost ground against the perceived safe-haven currency as regional equities rallied on reduced expectations of Fed tightening.
"The dollar's fall is in reaction to the FOMC, but the yen fell this morning on risk-on sentiment, then it strengthened in the afternoon," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.
Fed policymakers noted that the U.S. economy faces risks from an uncertain global economy, even though moderate growth and "strong job gains" would allow it to raise rates this year. think there was some amazement that the Fed had been so hawkish, when others were going to negative rates, but this brings them more in line with the global economy. But still, it was a reality check," said Bart Wakabayashi, head of FX sales at State Street Global Markets in Hong Kong.
Against its Japanese counterpart, the dollar slipped 0.3 percent to 112.18 yen JPY= after earlier falling as low as 111.94. It still remained mired in its recent well-trod range between the Feb. 11 low of 110.985 yen and the March 2 high of 114.875.
"If it stays in this range much longer, some might think it's formed a hard floor there, and you might have some people adding dollar longs back in the game," Wakabayashi said.
Against the yen, the euro skidded 0.4 percent to 125.85 yen. But it inched up slightly against the dollar to $1.1226 EUR= , after the Fed helped propel it to a one-month high of $1.1244 overnight.
The dollar index .DXY , which tracks the greenback against a basket of six major currencies, slumped 0.3 to 95.617, after plunging to a one-month low of 95.539 in the wake of the Fed announcement.
The index slid nearly 1.3 percent in the time between the Fed statement's release and the end of Fed Chair Janet Yellen's remarks, as investors ratcheted down their expectations that higher U.S. interest rates would lift the dollar anytime soon, and pondered when the next tightening would come.
"We doubt that the doves will be ready for a rate hike within the next six weeks. However, by June there may very well be a majority for a hike," analysts at Rabobank said in a note.
Ahead of the Fed, the dollar initially rose after data showed an increase in underlying U.S. inflation and the housing market continued to strengthen. on Thursday, the Bank of England will also announce a policy decision, and is expected to stand pat.
A Reuters poll last week showed that most economists do not expect the BOE to raise rates until the first quarter of 2017, versus the fourth quarter of 2016 seen in a poll taken just a month before. pound inched down about 0.1 percent to $1.4234 GBP= , holding above the previous session's nearly two-week low of $1.4053.