Dollar on the backfoot with Federal Reserve likely to sound dovish note

The dollar was trapped on the backfoot against major peers on Wednesday as markets wait on comments from Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy.

The greenback held declines against riskier currencies, with pandemic recovery hopes getting a boost as the International Monetary Fund upgraded its forecast for 2021 global growth. Treasury yields, whose rise had supported the dollar at the start of this year, declined overnight amid caution about the eventual size of and potential delays to President Joe Biden's $1.9-trillion fiscal stimulus plan.

"The stronger the world economic outlook, the weaker the US dollar," said Joseph Capurso, currency analyst at Commonwealth Bank of Australia in Sydney. "Powell is going to make clear that they don't see any near-term exit from their very easy policy stance, and that's going to pull the dollar down." Powell is due to speak at a news conference after the Fed's two-day policy meeting that ends Wednesday.

Traders are also keenly watching progress on the US stimulus front after Senate Majority Leader Chuck Schumer said Democrats may try to pass much of the President's massive spending package with a majority vote, but it is not clear if they have the numbers to override Republican objections.

The dollar index was little changed at 90.172 early in the Asian session, holding Tuesday's 0.2 per cent decline. The greenback traded at 103.61 yen, little changed after a 0.1 per cent slide overnight. The euro was mostly flat at $1.21625 after rising around 0.1 per cent in the previous session. The riskier Aussie dollar gained 0.1 per cent to 77.51 US cents, adding to Tuesday's 0.5 per cent rally. The British pound climbed as high as $1.3753 for the first time since May 2018 on Thursday, before trading 0.1 per centhigher at $1.3746.