Investing.com - The U.S. dollar was holding steady against a currency basket on Wednesday ahead of the Federal Reserve’s closely watched rate decision later in the day, as hopes for progress in the U.S.-China trade dispute supported market sentiment.
The U.S. dollar index versus a basket of six major currencies was little changed at 97.14 by 03.30 AM ET (07:31 GMT), holding above a three-month low of 96.46 hit earlier this month.
The Fed is widely expected to stand pat on monetary policy this time but open the door for an interest rate cut at the next meeting in July.
The U.S. central bank is scheduled to release a statement at 1800 GMT, followed by a press conference by Chairman Jerome Powell shortly after.
But with so much dovishness already priced into the markets and the dollar having weakened 1% over the past three weeks, some market analysts say the greenback may strengthen if the Fed signals a more neutral stance.
"The majority view among the Fed comments does not suggest any particular appetite for an immediate rate cut, say in June or July," HSBC strategists said in a note. "The balance of risks favors being long the dollar, not least because positioning is likely a little lighter after the recent sell-off.
The euro was steady at 1.1189 after shedding 0.2% overnight, when it brushed a two week low of 1.1181.
The decline in the euro came after European Central Bank President Mario Draghi said the bank will need to ease policy again if inflation doesn't head back to its target.
The Australian dollar was little changed at 0.6871 after mounting a rebound the previous day, when it pulled away from a five-and-a-half month low of 0.6832 reached on growing expectations that the Reserve Bank of Australia may have to cut rates again.
The Aussie, along with the Chinese yuan, got a lift on Tuesday as China and the United States rekindled trade talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping.
Against the yen, the dollar was a shade lower at 108.37.
Elsewhere, the British pound was holding at 1.2550 as traders waited for news on the contest for the leadership of the ruling Conservative party.
--Reuters contributed to this report