Dollar slips lower ahead of Fed meeting

The dollar was weaker against the euro and the yen on Tuesday as ongoing uncertainty over when the Federal Reserve will start to taper its asset purchase program weighed.

During European morning trade,EUR/USD rose to session highs of 1.3782 and was last up 0.05% to 1.3768.

Demand for the euro continued to be underpinned after data on Monday showed that the euro area’s composite purchasing managers’ index rose to a three month high in November, indicating that European Central Bank policymakers will not need to step up stimulus measures. 

USD/JPY hit session lows of 102.88, down from Friday’s five year highs of 103.91, and was last down 0.13% to 102.87.

Sentiment on the dollar remained fragile ahead of the outcome of the Fed’s two-day policy meeting on Wednesday, with some expecting the bank to announce a small reduction in the pace of its USD85 billion-a-month asset purchase program.

Markets were turning their attention to U.S. inflation data due out later in the session amid concerns that the subdued inflation outlook could prompt the Fed to keep its stimulus program in place for longer.

The pound was higher against the dollar, with GBP/USD rising 0.15% to 1.6323 ahead of U.K. data on consumer prices.

The dollar was trading close to two year lows against the Swiss franc, with USD/CHF dipping 0.04% to 0.8868, holding just above the lows of 0.8839 struck last Wednesday.

The greenback was steady near three month highs against the Australian dollar, with AUD/USD edging down 0.04% to 0.8944.

Earlier Tuesday, the minutes of the Reserve Bank of Australia’s December meeting left the door open for further rate cuts, but said it was important to first see the effects of earlier cuts.

The U.S. dollar was lower against its New Zealand and Canadian counterparts, with NZD/USD up 0.22% to 0.8275 and USD/CAD down 0.18% to 1.0576.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, edged down 0.04% to 80.21.