Dollar steady ahead of Wednesday's Fed statement

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The dollar held firm against a basket of currencies on Tuesday as traders await the Federal Reserve's decision on whether to raise interest rates by year-end amid evidence the U.S. economy has slowed in recent weeks.

The Norwegian crown, Canadian dollar and other currencies that are sensitive to energy prices fell against the greenback as Brent crude futures in London fell to their lowest since mid-September on anxiety about oversupply.

The dollar has enjoyed a modest rebound since late last week, when China cut interest rates for the sixth time in less a year and the European Central Bank hinted it may expand its bond purchase program.

The greenback's relative strength has hurt U.S. exports and manufacturing activity. The government said on Tuesday its gauge of business investment plans fell for a second straight month in September.


There is broad consensus the Federal Open Market Committee will refrain from ending its near-zero interest rate policy after its two-day meeting concludes on Wednesday. The U.S. central bank's policy-setting group may still hint at the possibility of a rate hike at its December meeting.

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"The data has been consistently negative since the (Fed's) last meeting. That combined with oil prices and the risk of inflation in the future is collectively going to discourage the Fed from being overly hawkish," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York.

U.S. interest rates futures implied traders see a 5 percent chance of the Fed raising rates on Wednesday and a 30 percent probability of such a move in December, according to CME Group's FedWatch program.

The FOMC will release its policy statement at 2 p.m. on Wednesday.

The dollar index was up 0.05 percent at 96.92, not far below a 2-1/2 month peak of 97.201 struck on Friday.

The euro slipped 0.13 percent to $1.1040, but the greenback fell 0.58 percent to 120.35 yen.

The dollar strengthened against currencies of major oil exporters as Brent oil futures fell below $47 a barrel.

The Norwegian crown fell more than 1 percent to a three-week low against the dollar at 8.462 crowns as investors bet cheaper crude may lead its central bank to loosen policy further.

Canada's currency also weakened. Canada's dollar reached C$1.3272 to the U.S. dollar, its weakest since early October. Russia's ruble fell over 3 percent to 64.96 rubles per dollar.