* Dollar down for third straight session
* Euro up on ebbing Italy political turmoil
* Commodity currencies - Aussie, Kiwi, Norwegian crown up
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Ritvik Carvalho
LONDON, Jan 20 (Reuters) - The dollar sank against a basket of currencies for a third straight session on Wednesday as improved sentiment buoyed riskier currencies such as the Aussie dollar and the euro.
The Australian dollar was the biggest mover in the G10 group of currencies, gaining half a percent to $0.7734 AUD=D4 . The New Zealand dollar was a close second, up 0.35% at $0.7140 NZD=D4
Ebbing political turmoil in Italy, with Prime Minister Giuseppe Conte winning a crucial vote to stay in power, helped lift the euro to $1.2158, already buoyant on a survey that showed improving investor sentiment in Germany. the world will be watching Joe Biden's inauguration as U.S. President at noon in Washington (1700 GMT), traders were more focused on his policies than the ceremony.
"Authorities have warned of possible armed protests across the country, which might cool the markets' upbeat mood (stock futures point to another positive open), but the muted market reaction to the Capitol riots on 6 January suggests most assets – including the dollar - may end up being only marginally influenced by any episode of social unrest today," ING said in a note to clients.
U.S. Treasury Secretary nominee Janet Yellen urged lawmakers to "act big" on stimulus spending at her confirmation hearing and said she believes in market-determined exchange rates, without expressing a view on the dollar's direction.
The index that measures the dollar's strength against a basket of peers was down 0.1% at 90.390 =USD
While the dollar has perked up in recent weeks on the back of a rise in U.S. Treasury yields, investors still expect the currency to weaken.
"We remain bearish U.S. dollar, and expect the downtrend to resume as U.S. real yields top out," said Ebrahim Rahbari, FX strategist at CitiFX.
"Continued Fed dovishness remains important for our view, in addition to global recovery, so we'll watch upcoming Fed-speak closely."
Positioning data shows investors overwhelmingly short dollars as they figure budget and current account deficits will weigh on the greenback. 0#NETUSDFX=
UBS Global Wealth Management's chief investment officer Mark Haefele reiterated a bearish view on the dollar, noting that pro-cyclical currencies like the euro, commodity-producer currencies, and the pound would benefit "from a broadening economic recovery supported by vaccine rollouts".
Sterling traded 0.2% higher to the dollar at $1.3668 GBP=D3 , up for a third straight day.
Cryptocurrency Bitcoin fell 1%, trading at $35,529. BTC=BTSP
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