Dollar little changed

The dollar was little changed against a basket of currencies on Tuesday as traders awaited the end of a Federal Reserve meeting at which the central bank may announce new efforts to thaw frozen credit markets. US and European stocks edged up but sentiment remained fragile, and data showing US consumer confidence at an all-time low this month kept traders cautious and currencies in confined ranges.
The Fed, which cut its key interest rate to near zero last month, concludes its two-day meeting on Wednesday, and analysts said the market will be on alert for word of any new policy initiatives, including purchases of US government bonds.
"Rates can't go any lower, and they certainly can't raise them, so all that's left for the Fed is tell us what their plans are," said Chuck Butler, president of Everbank World Markets in St. Louis.
Late in New York, the dollar was nearly unchanged against a basket of six major currencies at 84.441. It was down 0.1 percent at 88.91 after earlier dipping to 88.45. The yen tends to rise when anxious investors spurn higher-yielding, higher-risk currencies and assets for the Japanese currency's low but steady returns.
The euro rose 0.1 percent to $1.3178 but was below a one-week high above $1.33 hit after data showing a surprise gain in German corporate sentiment. Sterling added 1.3 percent to $1.4148, moving further away from last week's 23-year low near $1.35, as UK banking shares rose.
There were few signs of improvement in the US economy on Tuesday. Data from industry group The Conference Board showing US consumer confidence at a record low in January added to market gloom. Another report showed US home prices fell by a record 18.2 percent in the year to November.
"The economic backdrop is still pretty poor," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York, who said the rebound in sterling and the euro from recent lows was partly technical, with a bit of profit-taking mixed in.
Lately, the dollar, too, has been lifted by safe-haven flows, though some analysts expressed doubts about whether this would continue amid fears of increased US deficit spending and signs of malaise in the world's biggest economy.
The euro has managed to hold above $1.30 for most of January, recovering quickly from a brief dip below that level last week and stopping well short of 2-1/2-year lows near $1.23 hit back in November. "It could be a head fake, but the euro has held pretty well and the dollar index is trading around an area where it could be in for a short-term slide," Butler said.
Currency analysts at UBS, though, say that economic and policy uncertainty will keep risk aversion high in the medium term. "We continue to expect the dollar to be supported in the current environment," they wrote in a note to clients.
Some investors also expect the United States, the first major economy to fall into recession, to also be the first among developed countries to start growing again. Earlier, news that Japan launched a $16.7 billion plan to buy shares in firms whose future has been threatened by the financial crisis boosted risk demand and lifted Tokyo's benchmark Nikkei index nearly 5 percent.