Dollar edges higher as markets await Fed decision

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The dollar drifted higher on Tuesday, trading in narrow ranges, as investors continued to adjust positions ahead of this week's key decision on bond-buying by the U.S. Federal Reserve.

The U.S. currency ended last week slightly lower against a basket of major currencies and investors are buying back the greenback this week to square up positions, analysts said.

(Read more: Cramer: Could Fed send stocks tumbling lower?)

As the Fed begins its two-day policy-meeting on Tuesday, market participants generally expect no major policy changes, though the U.S. central bank could begin to lay the groundwork for a reduction in its economic stimulus that could occur in the first quarter of the year.


In midday trading, the dollar index was up 0.1 percent at 80.137. It is down about 0.7 percent over the last three weeks.

Against the yen, the dollar was down for a third straight session, falling 0.4 percent to 102.63.

The , which reached a six-week high against the dollar last week, slipped 0.1 percent to $1.3749, shrugging off an upbeat German sentiment survey that followed a strong German PMI report on Monday.

The chances of the Fed starting to taper its huge bond-buying program this month or next have increased after a run of upbeat data, including strong November industrial production, although a majority of economists polled by Reuters still expect the change to come in March.

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