The dollar drifted lower against the euro and the yen on Wednesday as investors waited for the Federal Reserve to deliver an expected interest rate hike and give clues on the future outlook for monetary tightening.
The Fed is expected to raise rates by a quarter point to 2.5 percent in its sixth tightening since June when it announces its decision at 2:15 a.m. EST. Markets are keen to see if the Fed signals a shift in its campaign of "measured" tightening in the statement.
Investors were hesistant to tilt their positions also ahead of U.S. jobs data and a meeting of Group of Seven rich nations later in the week.
"The dollar's weakness is marginal and people are not willing to take big positions given we have so much news coming out toward the end of the week," said Niels Christensen, senior currency strategist at Societe Generale in Paris.
"The Fed's policy is well directed and it meets expectations so the statement will be crucial. They are likely to be pleased with the labor market and they could voice concern a bit about inflation, but it's hard to see how they can become more hawkish."
The euro was up over a quarter percent from the U.S. close at $1.3070 at 5:40 a.m. EST, after hitting 6-day highs of $1.3095 earlier. It also rose to its highest level in nearly three weeks at 135.80, partly bolstered by buying by Japanese investors of European bonds.
The dollar was at around 103.56 yen, slightly down from late U.S. levels.
Euro zone producer prices fell more than expected in December, driven down by declining energy costs.
German unemployment rose in January to its highest recorded level since 1933 as government labor market reforms and seasonal effects added more than half a million people to the total. )