US dollar sluggish as traders brace for a dovish Fed

NEW YORK: The US dollar slipped against the euro and was sluggish against most major currencies on Monday, as caution about the American economy and expectations for an accommodative Federal Reserve kept the greenback subdued.

The euro was 0.16 percent higher at $1.1343, after hitting a two-week high of $1.1359 against the U.S. dollar.

The dollar has weakened in recent sessions as investors expect the Fed to strike a dovish tone when it meets this week.

Market participants expect the central bank to keep its benchmark overnight interest rate unchanged and stick to its pledge of a "patient" approach to monetary policy. Soft U.S. manufacturing data on Friday helped cement that expectation.

"The Fed will be the big news this week, and the market is looking for them to reinforce the dovish line and continue to hammer the point that they are here to support markets," Brad Bechtel, global head of FX at Jefferies, said in a note.

Traders will focus on whether policymakers will have sufficiently lowered their interest rate forecasts to more closely align their individual rate views for the next three years with the pledge of patience, analysts say.

Investors will also be watching for details on any plans by the Fed to stop culling its holdings of nearly $3.8 trillion in bonds.

"With the Fed expected to reduce its forecasts for future interest-rate rises, investors should expect this to boost appetite for risk assets later this week," Dean Popplewell, vice president of market analysis at foreign exchange trading firm Oanda, said in a note.

The Australian and New Zealand dollars rose  for a second straight session on Monday, helped by expectations for a dovish Fed. The Aussie climbed to a more than two-week high against its U.S. counterpart.

Russia's ruble hit a seven-month high, supported by stronger oil prices and interest in the country's sovereign bonds.

The British pound fell toward $1.32 as Prime Minister Theresa May tried to salvage her Brexit deal by winning over doubtful lawmakers with threats and promises to avoid any move to oust her.

May is expected to hold a third vote on her Brexit deal on Tuesday or Wednesday.

The Canadian dollar was little changed against its U.S. counterpart, trading in a narrow range ahead of Tuesday's federal budget as oil prices rose and investors bet on the Fed striking a dovish tone this week.