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 With investors largely in wait-and-see mode before the Fed,
Australia's dollar was the biggest mover, hitting a three-week high
after a measure of domestic inflation came in slightly higher than
expected.
Most markets were choppy, with Asian bourses closing up on the day
but European stock markets falling alongside oil prices. Though the
Aussie was up around 0.6 percent against its U.S. counterpart, other
currencies seen as risky struggled.
The Swiss franc fell to its lowest level since the Swiss National
Bank removed the cap on its currency just over a year ago, trading
at 1.1063 francs per euro. Analysts said 1.10 francs had been an
important level for the currency to break through. "It's difficult
to commit to positions, because one minute it's risk-on, the next
it's risk-off," Altana Currency Fund manager Ian Gunner said in
London.
"There are a lot of question marks over everything at the moment and
people are just searching for answers."
The dollar index inched down 0.1 percent to 98.976, nursing a 0.3
percent loss recorded on Tuesday and staying well below a seven-week
high of 99.799 set last Thursday.
The euro was flat at $1.0874, while the yen crawled up 0.1 percent
to 118.31 against the greenback.
"I think (in the coming days and weeks) we're going to see general
choppiness, and not a lot of direction - I don't think people are
going to have a lot of confidence to really put weighty amounts
behind ideas at the moment," Gunner added.
Wednesday's main focus will be on the statement released by the Fed
after its Jan. 26-27 policy review. While the U.S. central bank is
almost certain to keep interest rates unchanged, investors are keen
to see its latest economic outlook, particularly given the turbulent
start to the year.
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With Fed fund futures <0#FF:> implying just one rate hike this year,
compared with four hikes according to Fed policymakers' own rate
guidance, the risk is that anything the Fed says may be interpreted
as hawkish.
"The market isn't expecting anything particularly hawkish today so
obviously anything that did appear hawkish would certainly be a bit
of a surprise and would give the dollar a bit of additional
support," Rabobank currency strategist Jane Foley said in London.
"But I think the real question is: how dovish? How concerned are
they (Fed policymakers) really about inflation and how much do
global growth concerns feature in their discussions?"
More central bank policy decisions are coming up this week, with the
Reserve Bank of New Zealand (RBNZ) announcing its decision in the
European evening, and the Bank of Japan's (BOJ) policy statement due
on Friday.
(Additional reporting by Masayuki Kitano in Singapore and Ian Chua
in Sydney; Editing by Mark Heinrich)
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