Investing.com - The dollar was higher against the euro and the yen on Tuesday as expectations that the Federal Reserve will continue to reduce stimulus measures this week underpinned dollar demand.
The euro slipped lower against the dollar, with EUR/USD down 0.22% to 1.3644 from 1.3671 on Monday.
USD/JPY hit highs of 103.25, and was last up 0.48% to 103.04, recovering from Monday’s seven week lows of 101.76.
Investors were anticipating Wednesday’s policy statement by the Fed amid expectations that the bank will cut its asset purchase program by another $10 billion, to $75 billion per month. The central bank announced the first cut to its stimulus program in December.
Concerns over the impact of the Fed tapering stimulus, along with fears over a possible slowdown in China fuelled a broad based selloff in emerging currencies in recent sessions.
Sentiment on emerging market currencies remained fragile ahead of an emergency meeting of Turkey’s central bank later Tuesday. Turkey’s lira spiraled to new lows against the dollar on Monday, sparking widespread risk aversion.
The pound was slightly lower, with GBP/USD dipping 0.08% to 1.6570. Sterling showed little reaction after preliminary data released on Tuesday showed that the U.K. economy grew in line with expectations in the fourth quarter.
The U.K. economy grew 0.7% in the final three months of 2013, slightly down from growth of 0.8% in the previous quarter, and expanded 2.8% from a year earlier.
On an annual basis, U.K. gross domestic product grew 1.9% in 2013, up from just 0.3% the previous year, the fastest annual rate of growth since 2007.
Elsewhere, USD/CHF was up 0.45% to 0.9001 from 0.8960 on Monday.
The Australian dollar was higher against the U.S. dollar, with AUD/USD rising 0.64% to 0.8794 as expectations for another rate cut by the Reserve Bank diminished after data showed that business conditions rose to a two-and-a-half year high in December.
National Australia Bank said its monthly business conditions index rose to four in December from a reading of minus three in November, as low interest rates, higher house prices and a weaker exchange rate boosted sales and profitability.
NAB’s separate business confidence index was unchanged at six in December.
NZD/USD was up 0.40% to 0.8265, tracking gains in the Australian dollar.
The U.S. dollar re-approached four-and-a-half year highs against the Canadian dollar, with USD/CAD rising 0.29% to 1.1147.
The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.25% to 80.78.