Dollar slips against euro before Fed decision; sterling dips

A hand holding U.S. dollar banknotes in China on January 25, 2018.
Zhang Peng | LightRocket | Getty Images

The dollar dipped against the euro on Tuesday, a day before the Federal Reserve was expected to cut U.S. interest rates, while sterling dipped as Britain looked likely to go to election in December.

Investors will watch the conclusion of the U.S. central bank's two-day meeting, and the dollar may gain if the Fed indicates reluctance to cut rates more.

Were looking for a hawkish reaction, which would lean toward a stronger dollar, said Mark McComick, North American head of FX strategy at TD Securities in Toronto. Given that markets are looking for the Fed to prop up the economy over the coming months, I think them signaling a little bit of a pause would kind of reinforce some consolidation in the dollar, especially against euro and sterling which have been driven by the Brexit euphoria, he said.

Increasing optimism that Britain will reach a deal to avoid a disorderly exit from the European Union has supported the euro and sterling recently. Still, the pound dipped on Tuesday in choppy trading after Prime Minister Boris Johnson won parliament's preliminary approval to hold Britain's first December election in almost a century in a bid to break the Brexit deadlock.

On Monday, the EU agreed to a three-month flexible delay to Britain's departure. Sterling fell 0.04% against the dollar to $1.2857. It has risen from $1.2193 on Oct. 8, but is below a five-month high of $1.3012 reached on Oct. 21.

The Australian dollar climbed for a third straight session against the greenback on growing hopes for a U.S.-China trade agreement. Australia's economy is highly correlated to China's and on Monday, U.S. President Donald Trump said he expected to sign a significant part of the trade deal ahead of schedule.

The dollar index against a basket of six major currencies fell after data showed U.S. consumer confidence unexpectedly fell in October.