London, Sept 18 Reuters The dollar surrendered some of its overnight gains against the yen on Wednesday, as investors tweaked their positions ahead of a policy meeting expected to initiate a U.S. easing cycle.

The Federal Reserve is expected to make its first interest rate cut in more than four years at 1800 GMT, with markets pricing a 63 probability of a 50 basis point cut.

The dollar has fallen along with U.S. yields since July and at 1.1124 per euro is not far from the year39;s low at 1.1201 in anticipation of the U.S. easing at a clip, with more than 100 basis points of rate cuts priced in by Christmas.

The yen, up more than 12 since July, has been surging because the Bank of Japan which sets policy on Friday has been hiking rates at the same time as the Fed prepares to cut.

It rose about 0.45 to 141.78 per dollar on Wednesday, recouping about a third of an overnight drop. The yen was down 0.33 to 157.72 per euro .

Elsewhere, the Australian dollar traded at a twoweek top at 0.67885, while a rise in milk prices supported the New Zealand dollar at 0.6225, though moves were tentative ahead of the Fed39;s meeting.

I think markets really struggle to find much sense of direction today before the FOMC, said ING currency strategist Francesco Pesole, referring to the Federal Open Market Committee.

Traders say the Fed39;s tone as well as the size of the rate cut will drive the reaction in the foreign exchange market.

A dovish Fed on a substantial easing path should…