The dollar slipped marginally lower in early European trade Tuesday, but just off multi-week highs ahead of the latest two-day meeting of the Federal Reserve.
At 2:50 AM ET (0750 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was 0.1% lower at 90.442, but this was still near the top of its recent range.
USD/JPY gained marginally to 110.09, just off a hit a seven-session high, GBP/USD was flat at 1.4112, and EUR/USD rose 0.1% to 1.2127, just above a one-month low of 1.2093 it hit last week, The risk-sensitive AUD/USD was flat at 0.7711, with the Reserve Bank of Australia releasing the minutes from its latest meeting earlier in the day.
The U.S. Federal Reserve starts its latest two-day policy meeting later Tuesday against a backdrop of sharply rising inflation as the country’s economy makes a solid recovery as it gradually reopens.
Fed officials, led by Chairman Jerome Powell, have been insistent that these inflationary pressures will be transitory and ultra-easy monetary settings will stay in place for some time to come. However, with positioning heavily loaded against the dollar, traders are wary of any shift in tone with a potential discussion about tapering its bond-buying.
“The Fed meeting is the last big event before the summer period and will likely set the market tone for the coming weeks. We expect caution will prevail and the dollar may ultimately lose some support,” said analysts at ING, in a research note.
Ahead of the Fed's statement and news conference on Wednesday, markets will eye U.S. retail sales and PPI data for May as well as the NY Empire State manufacturing survey later on Tuesday, as the Fed officials will be using these numbers to help guide their decisions.
Nearly 60% of economists in a Reuters poll expect a tapering announcement in the next quarter.
Elsewhere, USD/TRY is up 0.1% to 8.4665, with the Turkish lira extending losses against the dollar after President Recep Tayyip Erdogan said his nation’s stance remains unchanged on the S-400 missile-defence system it purchased from Russia.
The remarks, coming directly after Erdogan met with President Joe Biden on the margins of a NATO summit in Brussels on Monday, dashed hopes for a breakthrough on a key issue that’s strained ties between the two countries.