The U.S. dollar rebounded against the euro and yen on Tuesday after traders took profits from gains in those currencies and favored the greenback on expectations that the Federal Reserve could take a hawkish bias in a policy statement on Wednesday.
Traders said anticipation that the central bank could reinforce expectations for a September rate hike helped boost the dollar after the biggest dive in Chinese equity markets in eight years had weighed on the greenback in the previous session. The dollar hit a two-week low against the euro and a nearly two-week trough against the yen Monday.
"Anybody who bought euros amid the 1 percent rally yesterday is likely to take some money off the table ahead of tomorrow's event risk," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Fed rate hikes are expected to boost the dollar by driving investment flows into the United States.