The dollar edged higher on Monday but held close to a nine-month low against a basket of currencies, with most investors convinced that the Federal Reserve will maintain its ultra-loose monetary policy this week and in the months ahead.
The Federal Open Market Committee, the Fed's policy-making arm, is unlikely to make any shift to policy at its meeting on Tuesday and Wednesday as the Fed awaits more evidence of how badly Washington's budget battle has hurt the U.S. economy.
Many economists believe the Fed could stand pat for the rest of the year. Most expect the central bank not to begin withdrawing its $85 billion per month bond buying program until March 2014.
"It may turn out that a neutral FOMC is a green light to keep selling the dollar until November headline data begin appearing in early December, but as we note above there is already a lot of dovishness priced in," said Steven Englander, global head of foreign exchange strategy at CitiFX, a division of Citigroup in New York.
The government shutdown interrupted data gathering in October, muddying the picture for Fed policymakers seeking signs on the economy's strength. Economic data released since the shutdown ended has been surprisingly weak.
"However, insofar as the Fed gives any hint that the market has swung too far in the direction of 'QE forever', there will be risk for emerging market (currencies) and in particular for the high yielders that investors have bought back with a passion over the last month," Englander said.
In thin trade, the euro traded down 0.1 percent at $1.3786, having risen to $1.3832 on Friday, its highest since November 2011, according to Reuters data.
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