Why the Fed meeting won't be a big deal for dollar

With just days to go, Fed hike still a close call

The dollar is on the back foot ahead of this week's U.S. Federal Reserve meeting and it may stay that way even if the central bank delivers its first rate hike in nine years, some analysts say.

The greenback slipped to its lowest level in almost three weeks against other major currencies on Monday as traders bet that the Fed is unlikely to lift interest rates this week amid an uncertain outlook for global growth, especially as China's economy slows.

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Even if the Fed does deliver a rate hike at the end of a two-day meeting on Thursday and gives the dollar a short-term boost, analysts expect the central bank is likely to suggest that further monetary tightening is likely to be slow, keeping the dollar in a tight range.

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"Only a big surprise would change the dollar outlook – if the Fed suggests they are on the path to aggressive tightening that would shift dollar sentiment in a big way," Geoffrey Yu, a currency strategist at UBS, told CNBC.

"Even if they do move, they are likely to signal that they are on a very slow path to hiking rates and so euro/dollar should remain within a tight trajectory between $1.10- $1.14," he said.

The euro was trading at $1.1317 on Monday, having hit its highest level in about two and a half weeks.

The dollar index, which measures the greenback's value against other major currencies, was trading at about 95.41. It is down roughly 5 percent from a 12-year peak hit in March, reflecting a scaling back of market rate-hike expectations.

Still, latest market positioning data suggests investors remain long the dollar or in other words they still favour trades betting on dollar strength.

After all, any U.S. monetary tightening in the months ahead is likely to take place against a backdrop of monetary stimulus from other major central banks such as the European Central Bank (ECB), bolstering the appeal of the greenback.

Read MoreFed's move on rates still a close call

"Aren't you worried that probably the most overcrowded trade in the world is that everybody is long the dollar because they assume that just as the ECB and BOJ (Bank of Japan) continue with QE (quantitative easing), the Fed raises rates?," Bob Parker, a senior adviser at Credit Suisse said on Monday's "Squawk Box Europe."

"We are in a trading range for the dollar and precisely for the euro, I think we have a ceiling of $1.15, $1.16 and a floor of probably at around $1.05," he said, discussing the dollar and this week's Fed meeting.

Other analysts said they remained bullish on the dollar, especially against commodity and emerging market currencies which have come under pressure from a recent rout in commodity prices and concerns that China's economy is slowing faster than anticipated.

The Australian dollar, for instance, has tumbled almost 13 percent against the U.S. dollar so far this year, while the Brazilian real – a major emerging market currency – has slumped some 45 percent.

"There is a case to be bullish on the dollar even beyond the Fed meeting," Ian Stannard, head of European FX strategy at Morgan Stanley told CNBC late last week.

"We believe the dollar is going to continue to perform even if the Fed doesn't move until December," he said. "In the long term, the focus will return to fundamentals."