The dollar rose against the euro and Swiss franc on Monday, buoyed by widespread expectations the US Federal Reserve will raise interest rates this week and awaiting signals on future rate hikes.
The market is pretty much unanimous in expecting the Federal Open Markets Committee (FOMC) to raise the federal funds rate by 25 basis points after Tuesday's meeting, following rises in June and August. The expected increase would lift the rate to 1.75 percent.
More important for the market is what the Fed signals on policy after a hike this month, as recent weak data has raised doubts over the strength of the US economy.
"Everyone agrees the Fed is going to raise 25 basis points and issue a balanced statement - a balanced assessment of risks and the optimistic view on the economy," said Marvin Barth, senior currency economist at Citibank.
"The current policy is still pretty stimulative and they see the need to go back towards a neutral fund rate at a measured pace. So it's hard to see if it will prompt the market to move out of recent ranges."
By 1130 GMT the euro extended earlier losses to stand down half a percent on the day at $1.2135 but was still in the middle of its recent range.
The dollar was up nearly half a percent against the Swiss franc at 1.2742.
It was also slightly firmer on the yen at 109.70 yen, in the middle of its recent range. Japanese markets were closed for a holiday, making the Asian trading session subdued.
Low interest rates were one factor which helped drive the dollar to a record low against the euro earlier this year.
After two hikes in June and August the prospect for future rate hikes was more uncertain given weaker-than-expected data out recently.
However, many do not expect a dramatic change in the Fed's tone.
"The FOMC will probably maintain a slightly hawkish tone which will give some near-term support to the dollar," said Adrian Foster, chief foreign exchange strategist at Dresdner Kleinwort Wasserstein.
Once the Fed decision is out of the way the market will be looking for US data to signal whether the economy is pulling out of a soft patch and gaining "traction" as Fed chief Alan Greenspan has said. It is a light week for US numbers but durable goods orders are due at the end of the week.
The market was also watching the price of oil, which raced above $46 a barrel on Monday after Russia's Yukos oil firm suspended some oil exports to China. Traders also remained concerned about storm-related disruptions of supply into the United States.
The Group of Seven rich nations and China are due to meet in Washington next week. At the last meeting in May, G7 finance ministers called on oil producing nations to boost supply to lower oil prices.
In Europe, European Central Bank President Jean-Claude Trichet speaks at 1600 GMT and chief economist Otmar Issing speaks half a hour later.