The dollar edged higher for a third day before a widely expected US interest rate hike next week, but its gains were limited by growing expectations that the Federal Reserve may express a more cautious view on future rate rises. The dollar has gained nearly 6 percent against a basket of currencies this year on the back of Fed rate increases, but a recent softening of US Treasury yields and tepid data has led some to forecast a peak for the dollar.
"We think the Fed may be inching closer to a wait-and-watch mode on the outlook for monetary policy," said Manuel Oliveri, a currency strategist at Credit Agricole in London.
"Even in recent episodes of market selloffs, the dollar hasn't been gaining as much, indicating investors are cautious about pushing the greenback higher."
On Wednesday, the dollar was a touch higher at 97.40 but moves were tiny in rangebound markets. The euro rose 0.1 percent to $1.1334.
Gauges of risk appetite such as the Australian dollar and the euro/Swiss franc were little changed.
Sterling was the biggest gainer, rising 0.4 percent in volatile trade at $1.2535, after Prime Minister Theresa May vowed to fight a challenge to her leadership and warned rebels within her party that they risked delaying or even stopping Britain's departure from the European Union.
The Australian dollar, a gauge of broader risk sentiment, was up 0.2 percent at $0.7217.
Market expectations for Fed rate increases in the money markets were barely for one more rate hike next year, even though some banks such as JP Morgan expect the Fed to raise interest rates as much as four times in 2019.
John Normand, head of cross-asset fundamental strategy at JP Morgan, said short position on bonds are still prevalent, in contrast to the long positions that should be held late-cycle if the economy is expected to slow materially and the Fed set to pause.