* U.S. dollar index down 0.1%

* Bitcoin tops $40,000 for the first time in more than 2 weeks (Updates prices, market activity, comments to U.S. market open; changes dateline, previous LONDON)

NEW YORK, June 14 (Reuters) - The dollar edged lower against a basket of major currencies on Monday but its moves were largely muted as traders awaited a much-anticipated U.S. Federal Reserve meeting later this week that might signal a change in the outlook for U.S. monetary policy.

Currency markets settled in tight ranges with implied volatility plumbing to multi-year lows after last week's strong inflation readings and a dovish European Central Bank meeting failed to dislodge currencies from recent trading levels.

"It's all about the FOMC this week, and we'll be watching to see exactly how much taper talk has really been going on and if it has any impact on the medium term outlook," Brad Bechtel, global head of FX at Jefferies, said in a note.

"My guess is that (Federal Reserve Chair Jerome) Powell deftly kicks the can down the road once again and pushes the time frame for any 'real' taper talk to later in the summer," Bechtel said.

The dollar index, which measures the greenback against a basket of six currencies, was up 0.1% at 90.427. Last week the index rose 0.4%, its largest weekly change in five weeks.

Muted FX moves in recent weeks crushed the Deutsche Bank FX Volatility Index down to 5.6 on Friday, its lowest in nearly 16 months.

"Many currency pairs have been in incredibly tight ranges for weeks, if not months, now and though we can't see that continuing for too much longer, sadly it's too hard to call a likely side for now," said John Marley, CEO of forexxtra, a London-based FX consultancy.

The Fed begins a scheduled two-day policy meeting on Tuesday. Nearly 60% of economists in a Reuters poll said a much-anticipated taper announcement will come in the next quarter, despite a patchy recovery in the job market.

Recent data pointing to a surge in inflation has raised concerns that price pressure following the post-COVID economic reopening could force policymakers into an earlier tapering of currency-depreciating stimulus.

Sterling was largely unmoved by Monday's news that Britain is set to delay the end of social distancing measures as the government seeks to contain a rapid rise in COVID-19 infections.

In cryptocurrencies, bitcoin traded above $40,000, for the first time in more than two weeks, after getting an almost 10% lift on Sunday, when Tesla Inc CEO Elon Musk tweeted that the electric carmaker will allow bitcoin transactions again when miners who verify transactions use more renewable energy.

(Reporting by Saqib Iqbal Ahmed in New York and Saikat Chatterjee in London; Editing by Catherine Evans and Bernadette Baum)