Dollar edges lower ahead of Fed meeting; yuan gains on support promises

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The U.S. dollar edged lower Tuesday, amid caution ahead of the start of the two-day Federal Reserve policy meeting, while the Chinese yuan strengthened after Beijing pledged to step up policy support.

At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 100.985. Dollar slips ahead of start of Fed meeting

The dollar has slipped slightly after weak U.S. business activity data released Monday played into the theory that the Federal Reserve will have limited headroom to raise interest rates any further after Wednesday’s widely expected hike.

A majority of economists polled by Reuters now expect Wednesday's increase to mark the last increase of the central bank's current tightening cycle.

That said, the dollar’s losses are minimal with traders wary of taking too strong positions given inflation remains above the Fed’s medium-term target.

“The reason why we warn against pursuing a full 'risk-on' rally in Rest of World (RoW) currencies is that the European economy looks weak and tomorrow's FOMC meeting will probably see the Fed's foot remaining firmly on the monetary brakes,” said analysts at ING, in a note.