The dollar was in a holding pattern early on Wednesday as markets waited for fresh guidance from the Federal Reserve, while a disappointing fall in dairy prices knocked the New Zealand currency broadly lower.
The dollar index .DXY stood at 96.633, stuck in familiar territory since drifting off a one-month low of 95.938 set last Friday. The euro was little changed just above $1.1100 EUR=.
Against the yen, both the greenback and euro nursed losses. The dollar fetched 113.16 yen JPY=, while the euro bought 125.71 yen EURJPY=R following a fall of 0.5 percent on Tuesday.
The Bank of Japan on Tuesday skipped a chance to expand its massive asset buying program even as it offered a bleaker view of the economy. Some traders said that combination cast a shadow on risk sentiment, which perversely bolstered demand for the safe-haven yen.
For the Fed, no policy action is expected but the market will be hyper-sensitive to any guidance on when it might deliver its next hike in interest rates.
Any signal that there is more than one hike in store this year will be positive for the greenback. Conversely, anything more dovish could keep the dollar pinned down.
Wall Street sees the Federal Reserve and its interest rate hike as down, but decidedly not out.
95 percent of the 42 respondents to the CNBC Fed Survey predict no rate hike at the March meeting, which begins Tuesday. A decision comes on Wednesday followed by a news conference from Fed Chair Janet Yellen.
But nearly all the economists, fund managers and strategists believe that the U.S. central bank's next move will be to raise interest rates and, on average, believe that next hike will come in June. In fact, 83 percent say the Fed's next hike could come in June or even earlier, with a small minority saying April or May.
There are 22 primary dealers in Treasury securities; 17 responded to the poll. Of that group, 14 see at least two interest-rate increases by year-end.
The consensus among dealers is that the Fed is on track to raise rates in June, with 14 of 17 believing the funds rate will rise to a midpoint of 0.625 percent. The current range of 0.25 percent to 0.50 percent puts the midpoint at about 0.375 percent.
The Federal Reserve will indicate it wants to raise interest rates later this year, but will not go through with it at its meeting this week, Paul Mortimer-Lee, global head of market economics at BNP Paribas, said Tuesday.
"I think they will show through the circled dots that they will hike three times this year. So the message is, 'we're not going in March, because of uncertainty, but we're highly inclined — if the market and the data allow us — to go in June,'" he told CNBC's "Squawk on the Street."
Oil settled 2 percent lower on Tuesday as the market yielded to technical pressure and worries that U.S. crude stockpiles were still growing amid falling output and refinery maintenance.
Uncertainty over how the U.S. Federal Reserve will word its policy statement on Wednesday also fed jitters in financial markets and pushed oil down for a second day in a row.
Crude prices pared losses in post-settlement trade after preliminary inventory data from industry group American Petroleum Institute (API) showed U.S. crude stockpiles rose by 1.5 million barrels last week, less than half the 3.4 million barrel build forecast by analysts in a Reuters poll. [API/S]
Reference: Reuters, CNBC
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