The US dollar was lower on Wednesday ahead of a Federal Reserve policy announcement that was widely expected to leave interest rates unchanged but nod to the strengthening economy, while the euro rose on firm underlying euro zone inflation data. Against a basket of six currencies, the greenback was down 0.35 percent to 88.846 at 10:23 am ET (1524 GMT), putting it on track to fall nearly 3.5 percent in January, its biggest monthly drop since March 2016.
The Fed ends a two-day meeting on monetary policy later on Wednesday. Analysts do not expect any dramatic changes in policy just days before incoming chairman Jerome Powell takes the helm. "(The meeting) is very unlikely to create anything, but, if anything, there's a bit of asymmetric risk to the more hawkish side," said Richard Scalone, co-head of FX at TJM Brokerage in Boca Raton, Florida.
If that were the happen the dollar, which has been steadying after falling dramatically last week, would correct even more, he said. "But I think that would be short-term because, like many, I think longer-term the dollar is more probable to go down than up." Traders are also looking ahead to the US government's job report on Friday that will include data on nonfarm payrolls and average hourly earnings.
The euro last climbed 0.49 percent to $1.2461 on Wednesday and was on track for its biggest monthly rise in nearly two years as firm underlying euro zone inflation data for January kept expectations alive for a swift withdrawal of the central bank's stimulus policies. The yen slipped briefly after the Bank of Japan increased its buying of medium-term Japanese government bonds in a move seen as a warning shot against further rises in bond yields.
The Japanese yen last weakened 0.13 percent versus the greenback at 108.91 per dollar. Sterling was last trading at $1.4179, up 0.24 percent on the day.
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