Dollar rises vs. yen, gains capped ahead of Fed

The dollar pushed higher against the yen on Tuesday and was trading in a tight range against the other major currencies as markets positioned ahead of the Federal Reserve’s policy statement on Wednesday.

During European morning trade, the dollar gained ground against the yen, with USD/JPY climbing 0.61% to 95.06.

Investors were looking ahead to outcome of the Fed meeting amid uncertainty over the bank’s next move after Chairman Ben Bernanke said last month the bank could begin to taper asset purchases if the economy continued to improve.

The dollar fell to two-month lows against the yen last week as growing expectations that the Fed will to start to unwind its USD85 billion-a-month bond purchasing program later this year spooked investors and fuelled a broad based sell-off in risk assets.

The yen was also boosted after the Bank of Japan disappointed expectations for measures to ease market volatility following its latest policy meeting.

The dollar was trading close to four month lows against the euro, withEUR/USD rising 0.13% to 1.3387.

Elsewhere, the greenback hovering close to four month lows against the pound, with GBP/USD slipping 0.10% to 1.5700.

The dollar was lower against the Swiss franc, with USD/CHF sliding 0.14% to 0.9212. 

The greenback was broadly higher against its Australian, New Zealand and Canadian counterparts, with AUD/USD down 0.59% to 0.9484,NZD/USD falling 0.25% to 0.7974 and USD/CAD dipping 0.01% to 1.0183.

Earlier Tuesday, the minutes of the Reserve Bank of Australia’s June policy meeting said the inflation outlook left scope for further rate cuts if necessary and added that further falls in the Australian dollar would help the domestic economy.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, inched down 0.02% to 80.80. 

The ZEW Institute was to release its closely watched report on German economic sentiment later Tuesday, while the U.S. was to release official data on consumer inflation, building permits and housing starts.