NEW YORK: The US dollar fell to a two-year low on Wednesday before the Federal Reserve is expected to affirm its commitment to holding rates near zero for years, with investors focused on whether the US central bank will also indicate a higher tolerance for future inflation.
"Forex markets will be laser-focused on whether there is a signal that it will tolerate higher inflation, as this could weigh on real yields, and thereby the dollar, further," analysts at Action Economics said in a report.
Against a basket of other currencies the dollar fell 0.26% to 93.51, after earlier dipping to 93.39, its lowest level since June 2018. It has weakened more than 3% since the last Fed meeting as yields on benchmark US Treasury debt have fallen more than 20 basis points since then.
The weakening dollar pushed the Australian dollar higher, with the currency trading at $0.7180, hitting a 15-month peak.
The euro traded at $1.1752, up 0.32%, although it has stepped back from Monday's 22-month high of $1.17815. The dollar traded at 105.05 yen, after earlier falling to a four-month low of 104.81 yen.
Sterling gained 0.43% to $1.2985, the highest since March.
Elsewhere, the Turkish lira held near record lows after it plunged 2% in minutes on Monday before reversing most of that fall. One-week and one-year Turkish lira implied volatility gauges jumped to their highest level in two months.
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