Dollar Traders Keep Powder Dry Ahead of Economic Reports

The dollar was steady against the euro and yen today, remaining in narrow ranges as dealers awaited a deluge of U.S. economic data this week that could shed light on the course of monetary policy.

Also keeping a lid on sharp price moves was a two-day Federal Reserve policy meeting that was expected to end on Wednesday with rates remaining at 5.25%.

Markets will focus on the statement that accompanies the Fed's decision to see what it suggests for future rate moves.

"There's definitely a 'let's wait and see what happens' attitude in the market right now," said Brown Brothers Harriman currency strategist Meg Browne.

Meanwhile, comments on the weak yen from European policy-makers continue to dog the market.

In the latest move, the euro fell sharply against the Japanese currency after German Finance Minister Peer Steinbrueck said the euro-yen exchange rate will be discussed at next week's meeting of the G7  rich countries.

Mid-afternoon, the dollar was trading within reach of Monday's four-year peak of 122.19 yen. The euro, having shed earlier gains on Steinbrueck's comments, wasnearly flat on the day, a little more than a yen away from a record high of 158.61 hit last week.

The euro was also trading little changed on the day.

Positions in the dollar and euro are relatively small, according to JPMorgan's proprietary flows data, further suggesting big shifts are unlikely ahead of the first estimate of U.S. fourth-quarter growth, also due on Wednesday.

Earlier Tuesday, the dollar got little bounce out of a U.S. consumer confidence index that was in-line with expectations.

"The confidence number is taking a back seat to the Fed meeting. The market is basically on Fed watch right now," said Omer Esiner, market analyst with Ruesch International in Washington.

The dollar would likely get a boost if the Fed sounds a more optimistic note on the economy after raft of strong U.S. data, Browne said.

"The market hasn't started to price in a rate hike this year, but it's tilting that way, and the main risk is the Fed could make it tilt even further," she said.

Negative sentiment continued to build on the yen as carry trades in which investors borrow in low-yielding currencies to buy higher-yielding ones continued to weigh on the yen and Swiss franc.

The exception to the rule Tuesday was the New Zealand dollar, the highest yielding among the world's most liquid currencies. It fell nearly 1% to US$0.6887 on a breakdown in technical support.

During the Asian trading session, a surprise 1.9% slide in Japanese household spending in December added to a run of tepid figures on consumption that had prompted the Bank of Japan to hold rates steady this month at 0.25%.

"The dollar-yen focus is still very much an interest rate story, with people taking out (expectations of) U.S. rate declines and also removing some Japanese rate (hike) expectations in the short term," said Adrian Schmidt, currency strategist at RBS Financial Markets.