NEW YORK: The dollar slipped on Tuesday as investors booked profit on the currency's recent rally ahead of a Federal Reserve meeting that could potentially turn more upbeat on the U.S. economy and flag an interest-rate increase sooner rather than later.
The dollar index, a measure of the greenback's value against six major currencies, was on track for its 10th weekly gain. Since May, the index has gained nearly six percent, but on Tuesday, it dipped 0.1 percent at 84.165.
"What we're seeing is some position-squaring ahead of the FOMC (Federal Open Market Committee meeting)," said Mark McCormick, currency strategist, at Credit Agricole in New York.
"But I think what we're prepared for is a sustainable bull market for the dollar, probably starting later in Q4. The goal here is to buy the dollar in dips."
The Fed begins the first of a two-day policy-making meeting on Tuesday and many investors are bracing for language that could accelerate the timing of the first interest rate hike since the global financial crisis of 2008.
That expectation spurred a rally last week in the 10-year U.S. Treasury yield to its largest gain in more than a year, bolstering the appeal of the dollar, particularly against the low-yielding yen.
"We expect the Fed to signal that it is on course to finish bond-buying next month and to raise rates in Q2 2015," said Kit Juckes, a strategist with Societe Generale in London.
"But we're painfully aware that's a consensus view and also, that with tomorrow's core CPI inflation expected to dip to 1.8 percent, there is no inflationary threat for the Fed to fight right now. No wonder dollar bulls are lacking conviction."
Credit Agricole, on the other hand, believes the market is underpricing the prospect of an earlier-than-expected U.S. tightening and the Fed could turn more hawkish in its outlook for rates.
In mid-morning trading, the dollar was down 0.1 percent against the yen at 107.11 yen, and 0.2 percent weaker versus the Swiss franc at 0.9333 franc.
The euro, meanwhile, edged higher against the dollar to $1.2947, hemmed in a $1.2859-$1.2980 range since a selloff sparked by a European Central Bank interest rate cut early this month faded.
Keeping pressure on the ECB, the OECD on Monday urged much more aggressive stimulus to ward off the risk of deflation in a subdued euro zone.
The Swedish crown, driven to a two-year low after weekend elections pointed to a left-leaning government, recovered around a third of a percent while sterling fell back ahead of Thursday's referendum on Scottish independence.
The pound was last at $1.6220, down 0.1 percent.
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