Against a basket of key rival currencies, the dollar was almost 0.1 per cent higher at 96.454 as it managed to find its footing after hitting its lowest level since March 1 at 96.291 in overnight trading.
The index is still down 1.3 per cent from a three-month high of 97.71 hit on March 7, on views the Fed will strike a dovish tone during its latest policy meeting.
The Australian dollar slipped a quarter of a per cent to 0.7070 dollar on a decline in 10-year bond yields and after Bloomberg reported that some U.S. officials expressed concern that China is pushing back against U.S. demands in trade talks.
“What has been priced out of global markets is the notion that we’re going to see a negative resolution to the trade talks,’’ said Chris Weston, head of research at foreign exchange brokerage Pepperstone in Melbourne.
“The last thing we need to see now is an increase in tensions that suggest there is a heightened probability that the U.S. are going to put their tariffs on that $200 billion trench at 25 per cent,’’ he added.
U.S. Trade Representative, Robert Lighthizer, and Treasury Secretary, Steven Mnuchin, are expected to travel to China next week for another round of trade talks with Chinese counterparts.
Yukio Ishizuki, Senior Currency Strategist at Daiwa Securities, said he did not think market participants were expecting a quick resolution to the Sino-U.S. trade spot any time soon.
“For the time being, the market will keep reacting to the headlines as they come and go,’’ he said.
Investors’ immediate focus was on the Fed to see whether the central bank will affirm its commitment to “patient” monetary policy and for clues about the likely path of U.S. borrowing costs.
The Fed is due to make its rate announcement at 1800 GMT on Wednesday and is expected to keep its benchmark overnight interest rate unchanged.
Most currencies remain within well-trodden trading ranges before the Fed decision, as market participants were cautious after taking cues from U.S. data offering new signs the world’s top economy is on a path of slower growth.
New orders for U.S.-made goods rose less than expected in January and shipments fell for a fourth straight month, offering more evidence of a slowdown in U.S. manufacturing activity, overnight data showed.
More positive signs were evident in Germany as a survey by the ZEW research institute indicated the mood among German investors improved more than expected in March, as a potential delay to Britain’s exit from the European Union helped lift sentiment.
On Wednesday, the euro and the Japanese yen were both down against the dollar.
The single currency was a shade lower at 1.1347 dollar.
The yen gave up about one-sixth of a per cent to 111.60 yen per dollar.
The greenback got some help from Japanese importers on a “gotobi” date – a multiple of five – on which accounts are traditionally settled.
Sterling was a shade lower at 1.3259 dollar.
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