The dollar steadied near an earlier one-week high against a basket of major currencies on Wednesday, with investors wary of selling it before a post-policy meeting statement from the Federal Reserve. The dollar index stood at 79.541, having touched an eight-day peak of 79.692. It remained well above Friday's nine-month low of 78.998.
The Fed's Federal Open Market Committee (FOMC) is widely expected to keep its massive bond-buying programme unchanged when it announces its decision at 1800 GMT and to signal that it is unlikely to begin scaling back the stimulus programme until 2014. Still, analysts said expectations of a delay to Fed tapering, probably until at least March, may be already priced into the dollar, prompting investors who sold the US currency in recent days to start buying it back.
"With the Fed event risk people don't want to enter new short positions," said Chris Turner, head of currency strategy at ING. However, he said the dollar was likely to turn weaker after the Fed announcement, potentially pushing the euro beyond its recent highs, unless policymakers stressed the economic impact of this month's US government shutdown would be temporary.
The dollar was also pulled off its highs as the euro turned slightly higher after data showed a jump in euro zone sentiment in October, which offset figures revealing an unexpected rise in the German jobless total. The euro was up 0.1 percent at $1.3762, having backed off a 23-month peak of $1.3833 set on Friday. Traders said the euro's failure to make a sustained break above $1.3800 left it vulnerable to a correction.
The euro was also supported by comments late on Tuesday by European Central Bank Governing Council member Ewald Nowotny, who said he saw no tools the central bank could use to dampen a strengthening euro. Against the yen, the dollar was up 0.1 percent at 98.22 yen, having hit a one-week high of 98.315 yen. The Australian dollar was up 0.25 percent at $0.9495, recovering from an earlier 2-1/2 week low of $0.9459 after Reserve Bank of Australia Governor Glenn Stevens said the currency was "unusually high".