The dollar was confined to narrow ranges on Tuesday, edging up slightly against most major currencies as traders looked ahead to the Federal Reserve's policy decision and statement on Wednesday.
The Fed's Open Market Committee is widely expected to leave interest rates on hold at 5.25 percent for the third consecutive time but to reiterate concerns on inflationary pressures.
Meanwhile, the yen remained under light selling pressure after Japan's top financial diplomat indicated he was not too concerned with the level of the yen, which hit record lows against the euro in late August.
Euro and sterling traders were on the look-out for speeches by European Central Bank Governing Council member Guy Quaden and Bank of England chief economist Charles Bean later in the day.
The market's spotlight, however, stayed on the dollar and the FOMC's two-day meeting which gets under way on Tuesday.
"With a dearth of significant data so far this week it seems the path of least resistance is to continue buying dollars," Bank of America currency strategist Kamal Sharma said.
"Critical to the interest rate outlook is likely to be the views on inflation - they are likely to remain vigilant on the outlook for core inflation, indicating their willingness to move on rates if they have to."
By 1139 GMT, the euro was flat on the day at $1.2544, while sterling was down 0.1 percent at $1.8697.
The dollar was up 0.1 percent against the yen at 119.55 yen and rose by the same margin against the Swiss franc to 1.2688 francs.
The dollar has maintained a firm bias so far this week as markets anticipate that the FOMC's statement accompanying its rate decision will place slightly more stress on inflation risks than slowing growth and softness in the housing market.
Mostly upbeat US data in recent weeks have reduced market expectations of a possible Fed rate cut early next year.
But Steven Saywell, senior currency strategist at Citigroup in London, said the market was unlikely to get any surprises from the FOMC and Friday's release of advance third quarter US gross domestic product could be more market-moving.
HBOS analysts said in a note to clients that overall third quarter growth was lacklustre. "But news over the last 6 weeks, especially on the consumer side and reflected in the Beige book, suggests economic activity may be re-gaining traction," it added.
In the eurozone, portfolio flows and current account data for August had no market impact. Industrial orders data beat forecasts, trimming the euro's earlier losses against the dollar and helping confirm the ECB's monetary policy outlook.
The ECB is widely expected to hike rates once more this year to 3.5 percent, although its 2007 path is less certain. The BoE is also expected to raise rates, next month, to 5.0 percent. Bean speaks at 1730 GMT.
Meanwhile, yen traders appear in no rush to buy back the Japanese currency after comments on Tuesday from Hiroshi Watanabe, Japan's top financial diplomat.
Comments
Comments are closed.