Dollar inches up as market awaits Fed decision

LONDON: The dollar edged up to a one-week high against a basket of major currencies on Wednesday as investors trimmed their recent bearish bets ahead of a post-policy meeting statement from the Federal Reserve.

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.

The dollar index was up 0.1 percent at 79.663, having touched an eight-day peak of 79.692 as it pulled away from Friday's nine-month low of 78.998.

"We are seeing some position squaring ahead of the FOMC meeting," said Niels Christensen, currency strategist at Nordea. "Everyone is expecting a cautious statement on the economic outlook, pointing to no tapering until next year."

He said market participants were divided on whether the Fed would scale back monetary easing in the first quarter or later. Any signal it was prepared to do so before year-end would be a surprise and cause "a huge positive dollar reaction".

The euro was steady at $1.3743, 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.

Against the yen, the dollar was up 0.1 percent at 98.23 yen , having hit a one-week high of 98.315 yen.

"It's basically some short covering of the dollar, which had been sold earlier," said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore.

But he said market players would probably hold off from aggressive dollar buying given uncertainty about the economic outlook after this month's partial US government shutdown.

Data due on Wednesday includes US private sector employment numbers for October from ADP, which comes ahead of the closely watched non-farm payrolls data for October, due on Nov. 8.

A majority of US primary dealers polled by Reuters last week said the Fed would not start cutting monthly bond purchases until next March.

The Australian dollar was up 0.4 percent at $0.9507, 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".