Dollar gains ahead of Fed policy decision

NEW YORK CITY (AFP) - The dollar gained against the euro and other major currencies on Tuesday as markets waited to see what Federal Reserve policymakers would say about the economy after their meeting on Wednesday.

The Fed is expected to stand pat on its policy, leaving its US$85 billion (S$106 billion) a month stimulus unchanged, but could still give a picture of when the much-anticipated taper of the QE3 programme could begin.

At 2100 GMT (5am, Singapore time), the euro was at US$1.3744, compared with US$1.3785 late Monday.

The dollar rose to 98.17 yen from 97.65, while the euro was at 134.93 yen, up from 134.62.

The British pound fell against the greenback, to US$1.6045 from US$1.6141, while the dollar rose to 0.8988 Swiss franc from 0.8955 franc.

The dollar has sunk steadily since September when the Fed surprised markets by holding back from trimming the stimulus.

Since then the United States economic picture has worsened somewhat, with growth hit by the 16-day partial government shutdown early this month and weakened confidence due to the political battles in Washington over economic policy.

With expectations of a continued easy-money flow from the Fed, traders have sought higher yields in Europe, sending the euro to US$1.3830 on Friday, the dollar's worst position against the euro since November 2011.

"Investors have been gradually selling dollars since the last Federal Reserve meeting, but on the eve of the next central bank gathering, we are seeing a broad-based rally in the greenback," said Ms Kathy Lien of BK Asset Management.

But that mostly reflects traders reducing short dollar positions, not a return to dollar-bullishness, she said.

In addition, the rally came "on the view that any surprises from the Fed will be to the upside."