LONDON: The dollar rose on Tuesday, recovering from recent falls, on caution that the US Federal Reserve may lay the groundwork this week for curbing stimulus later in the year.
The dollar index against a basket of currencies rose 0.1 percent at 81.756, above Monday's five-week low of 81.499 and chart support at 81.524, the 200-day moving average.
The dollar retreated in recent weeks after Fed Chairman Ben Bernanke stressed ultra-easy monetary policy was still needed.
But analysts said traders were wary of selling the dollar heavily due to expectations the Fed would scale back monetary stimulus in coming months. The US central bank concludes a two-day policy meeting on Wednesday.
"The market may have got ahead of itself in expecting a soft FOMC statement," said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen.
The dollar has also been under selling pressure after a media report last week that the Fed may tweak forward guidance to stress that interest rates will stay low for a long time.
Rasmussen said that if the Fed did this, the euro could rise towards $1.3350. However, he recommended using any falls in the dollar to buy it back.
The euro was up 0.1 percent at $1.3273, just below Friday's five-week high of $1.32975 and helped by surveys showing improved euro zone economic confidence.
Pledges to keep monetary policy loose are also likely after European Central Bank and Bank of England decisions on Thursday.
Analysts at Barclays recommended reinitiating short euro/dollar positions, with a target of $1.28 and a stop at $1.3430.
"The broader dollar strengthening trend remains very much alive." They said firmer US data, including monthly jobs figures on Friday, could lead to a stronger dollar.
But traders expected any dollar gains to be limited for now.
"The market is looking to get through the FOMC, month-end and (US) non-farm payrolls before a look back towards buying the dollar again," a London-based trader said.
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