The dollar edged lower as market players looked ahead to Wednesday's meeting of the Federal Open Market Committee, where rate-setters are expected to deliver a further reduction in interest rates to follow up from last week's emergency 75 basis point cut. However, trade remains cautious as equity markets have opened lower this week amid a fresh wave of risk aversion. Risk aversion has tended to benefit the dollar, alongside safe haven low-yielding currencies such as the yen and the Swiss franc, as the view that the US sub-prime crisis is set to spread to a widespread global downturn becomes more widespread. "The foreign exchange market remains caught between the conflicting forces of risk aversion and dollar negative movements in short-term interest rate differentials," said Steve Pearson at HBOS. Since it has transpired that the rogue trader at SocGen was partly to blame for the sharp falls on equity markets last Monday, expectations for a further aggressive 75 basis point Fed rate cut this week have been tempered. Most in the market now see a roughly equal chance of a 50 basis point cut and a 25 basis point cut. This gives some room for disappointment, especially if key US data this week, including fourth-quarter GDP on Wednesday and payrolls figures on Friday, are particularly poor. "Stockmarkets will almost certainly sell off if the scale of Fed easing disappoints and may not rally much, if at all, on a 50 basis point move, particularly if economic data later this week are very weak," Pearson said. Meanwhile, attention later today will turn to US new homes sales. For the euro, however, market focus remains on whether and when the European Central Bank will retreat from its current hawkish stance, which points to interest rates being left on hold for the time being due to concerns over inflation. There was some good news for euro zone rate-setters today, with M3 money supply growth slowing to 11.5 pct year-on-year in December from the record level of 12.3 pct recorded in November, but it nevertheless remains too high to alleviate their worries about the impact on medium-term inflation. "The ECB will be relatively relieved to see that M3 money supply growth slowed more than expected... nevertheless, money supply growth remains way above target and will continue to be a source of serious concern for the ECB even allowing for significant distorting factors," said Howard Archer of Global Insight. In the UK, the pound continued to shrug off earlier dovish comments from David Blanchflower, a member of the Bank of England's Monetary Policy Committee.