The dollar on Thursday advanced to its highest level against the yen and sterling since late last year as investors bet that US interest rates have more room to rise. The US Federal Reserve is almost unanimously forecast to increase its funds rate by a quarter-percentage point to 3.25 percent and is likely to signal more credit tightening ahead, boosting the dollar's appeal.
Inflation data released on Thursday did little to change investor expectations.
Sterling fell sharply on news the British economy grew slower than first thought in the first quarter, intensifying speculation of a Bank of England rate cut.
"The question is if (the Fed) changes their remarks of anything in their inflation statement," said Andreas Mann, principal at FrankfurtFX, a hedge fund.
"And the UK data overnight had a great impact on the market." The US central bank's policy statement is due out at 2:15 pm EDT (1815 GMT). The prospect of a rise has added to the dollar's rate allure compared with the euro, Swiss franc and the yen.
The dollar reached its highest value against the yen since October at 110.88, up nearly 0.4 percent from late US levels. The dollar was up 0.1 percent at 1.2829 Swiss francs.
The euro was at $1.2079, little changed from the prior US close and a cent above 10-month lows set last week. "Yield is at play here. I don't think the market wants to miss out on any dollar move after the Fed," said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi.
The pound plunged against the dollar and the euro after the final reading of first quarter gross domestic product was revised down to 0.4 percent from 0.5 percent and annual growth was cut to 2.1 percent from 2.7 percent.
Sterling hit its lowest levels since mid-October at $1.7904 before recovering slightly to $1.7911. The pound fell 0. 9 percent against the euro to 67.41 pence per euro.
The poor growth data came on top of Wednesday's weak retail sales figures and stirred expectations for a Bank of England interest rate cut from the current 4.75 percent.
Elsewhere, the New Zealand dollar fell to a five-month low of US$0.6931 before recovering some of its losses to trade at $0.6942. Both the New Zealand dollar and the pound have benefited from relatively high interest rates.
New Zealand has the highest cost of borrowing in the industrialised world at 6.75 percent.
Rising US rates, combined with Europe's struggling economy and political upheaval, have helped spark a dollar rally, driving the currency up 11 percent against the euro and nearly 8 percent against the yen this year.
Much focus is on the statement's wording and whether the Fed repeats that it expects to keep tightening policy at a "measured" pace or removes the word, which some officials have called for to give the central bank more flexibility.
Euro zone rates have been stuck at 2 percent for more than two years and speculation is rife the next move could be a cut, while rates in Japan are seen staying near zero for a while.
US consumer spending was flat in May, coming in slightly weaker than expected, government data showed on Thursday, while the core personal consumption expenditure index for May advanced 0.2 percent as expected after gaining 0.1 percent in April.
"I don't think this is going to be a big deal ahead of the FOMC statement," said Todd Elmer, foreign exchange strategist, Barclays Capital.
"Looking ahead to the statement, the key questions are whether they retain 'measured' and 'accommodative' and whether they reemphasis that pricing pressures are more evident."
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