But traders got nervous on Tuesday about what the Fed might say about the future path of interest rates and sent the dollar to a seven-week low against a basket of currencies. The dollar index fell to a low of around 97.19, while the euro traded around $1.0997 against the dollar.
"Weakness in commodity prices, emerging market assets, U.S. high yield investments, and the renminbi are all resulting in more risk-averse trading conditions encouraging a further lightening of long U.S. dollar position," said currency analyst at Bank of Tokyo-Mitsubishi, Lee Hardman.
"Long U.S. dollar positions are likely to be lightened further ahead of the upcoming FOMC meeting given the risk that the Fed may overcompensate for raising interest rates for the first time since June 2006 by providing more dovish than expected communication. However, a "dovish" rate hike from the Fed is well anticipated and US dollar weakness already in advance of the FOMC meeting should help to dampen the scope for any further weakness," he added.
As well as expecting a stronger greenback, almost 60 percent of the 215 fund managers, managing a total of $620 billion under management polled by BofA ML forecast the Fed will raise rates three times or more in the coming year.
"I expect the Fed to remain prudent and cautious yet pragmatic over the next year. I think the Fed has capacity for three rate hikes between now and the end of next year with the Fed funds rate rising by 75 basis points from current levels by the end of 2016. The U.S. will experience modest economic growth, slightly above 2 percent and consumer spending will drive much of that growth," global head of high yield at asset management firm Alcentra, Chris Barris said.