As of September, Fed officials' median projection was for two rate increases next year. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.
"Understandably, the market is in a little bit of a holding pattern" ahead of the Fed's policy statement, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.
Franulovich said the Fed could signal a "dovish hike," or a rate hike combined with a policy statement that alludes to recent strength in the dollar and higher U.S. yields as a potential constraint on growth, or a "hawkish hike" where the Fed raises rates and emphasizes faster growth.
The dollar index, which measures the greenback against a basket of six major currencies, rallied nearly 4 percent between the Nov. 8 U.S. presidential election and last Friday. Benchmark 10-year Treasury yields hit 2.528 percent on Monday, their highest level in more than two years.
Those moves have largely come about on expectations that U.S. President-elect Donald Trump will enact policies that increase spending and debt as well as spur growth and inflation.
"There is a lot of suspicion that the Fed might be more dovish than hawkish at this point, given the very strong run-up in rates," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.