The dollar edged higher on Wednesday, rising from a 13-month low hit in the previous session as investors trimmed some short bets before a Federal Reserve policy decision.
Markets have reduced expectations for a US interest rate increase in the coming months with expectations of another rate hike at less than 50 per cent before the end of the year, according to Reuters polls and CME's Fedwatch tool.
“If there is no change in the language of the statement, we can expect a mild dollar rally and there would be a better opportunity for the Fed to communicate its policy expectations at Jackson Hole next month,” Commerzbank currency strategist Ulrich Leuchtmann said.
The dollar edged up 0.1 per cent to 94.19 against a trade-weighted basket of its rivals. It fell to a 13-month low of 93.638 on Tuesday.
The US central bank will issue its decision following the end of a two-day policy meeting at 1800 GMT. Economists expect the Fed's benchmark lending rate to remain in a target range of 1.00 per cent to 1.25 per cent.
The euro was a shade lower at $1.1631. On Tuesday, it rose as high as $1.17125, its highest since August 2015, and just a hair below a 2-1/2-year peak, boosted by a stronger-than-expected German business survey.
The Australian dollar fell after data showed the country's consumer inflation was surprisingly soft in the last quarter. . It shed 0.6 per cent to $0.7888.