SYDNEY: The US dollar nursed modest losses early on Wednesday, having suffered an unexpected setback as jitters mounted hours before the Federal Reserve offers its latest guidance on interest rates.
Traders said sellers emerged after the Wall Street Journal's Fed watcher said the US central bank may keep the words "considerable time" in its policy statement following the Sept 16-17 meeting.
Markets have been bracing for a more hawkish tone and many were looking for the Fed to drop its promise to keep rates near zero for a "considerable time" after ending its bond-buying program.
The dollar index, which had been drifting just below a 14-month peak of 84.519, promptly fell to its lowest in over a week. It was last at 84.114, having sunk as far as 83.864 overnight.
Against the yen, the greenback slid to a low of 106.81, pulling further away from a six-year peak of 107.39 set last Friday. The euro climbed to a near two-week high just shy of $1.3000, before steadying at $1.2954.
The common currency all but brushed aside a closely watched survey that showed a drop in German analyst and investor morale to lows not seen since December 2012.
"Thankfully no one anywhere is trading data. We are all trading language.
In the US all we care about is "considerable period"," said Graeme Jarvis, an analyst at Westpac.
Analysts at Barclays said if the Fed's forecasts and the wording of the statement were to suggest that rates could go higher sooner rather than later, it would likely support the US dollar.
A notable mover was the Australian dollar, which rallied nearly 1 percent to a high of $0.9113, a smart turnaround from a 4-percent slide in the past week. It was further bolstered by a report from news website sina.com citing sources stating that China's central bank is providing 500 billion yuan of liquidity to the country's top five banks through standing lending facilities.
The Aussie, usually used as a liquid proxy for China plays, last traded at $0.9084.
There is little in the way of major economic news out of Asia on Wednesday, leaving the focus squarely on the Fed statement and Fed Chair Janet Yellen's media briefing due later in the day.
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