The dollar edged up against the yen on Wednesday as an improved appetite for risk prompted investors to dump the safe-haven Japanese currency, while the dollar dipped versus the euro as players awaited the outcome of a Federal Reserve meeting.
The Fed concludes a two-day policy meeting later in the day and could unveil new steps aimed at easing the credit crunch. With the benchmark interest rate already near zero, the market is looking for any new policy measures, such as purchasing long-dated Treasuries.
"If the Fed makes comments on purchasing Treasuries, it would soothe concerns that overseas investors may start picking up fewer US bonds," said Hideki Hayashi, chief economist at Shinko Securities. Japanese and Chinese investors have been big buyers of US government bonds and any shift in their investment stance on Treasuries could affect the dollar.
The dollar rose 0.3 percent from late US trading on Tuesday to 89.16 yen. The euro rose 0.6 percent to $1.3256 a day after it climbed on a surprise rise in Germany's Ifo economic research institute's corporate sentiment data.
Against the yen, the single European currency climbed 0.9 percent to 118.18 yen, having rebounded from a seven-year low of 112.08 yen hit on trading platform EBS last week. There was little currency reaction to the outcome of bilateral telephone talks between Japanese Finance Minister Shoichi Nakagawa and US Treasury Secretary Timothy Geithner.
Nakagawa and Geithner agreed the two nations needed to work closely to overcome troubles in the global economy, a senior Japanese finance ministry official said, adding they did not touch on currency rate issues in their talks.
The yen fell broadly, with higher-yielding currencies supported as the Nikkei share average erased early losses to turn positive in the afternoon, and US S&P 500 stock futures climbed around 2 percent.
Sterling was up 1.2 percent at 127.30 yen. The pound sank to a record low of 118.80 yen last week. Earlier, the Australian dollar dipped after data showed on Wednesday that Australia's consumer prices fell by the most in a decade in the fourth quarter, justifying talk of another aggressive interest rate cut next week. But the Australian dollar later rebounded and rose 0.9 percent on the day to $0.6675.