The Fed is widely expected to keep interest rates unchanged at its two-day meeting that ends on Wednesday. Investors will be watching for any clues on whether it may raise rates again this year, and when it will begin paring its massive bond portfolio.
There is some focus on the possibility that the Fed could indicate September as the starting date for reducing its balance sheet, said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore.
Such a hint from the Fed would not come as a big surprise, and may not provide much of a lift to the greenback, Innes wrote in a note, adding, “It will be the inflation language where a possible dovish skew will emerge.”
Sluggish inflation has kept the dollar under pressure and led to uncertainty on whether the Fed will raise interest rates again this year.
Still, the dollar regained some ground against major currencies in the previous session, as U.S. Treasury yields rose along with U.S. equities.