Investing.com – The U.S dollar drifted lower as the Federal Reserve kicked off its two-day meeting Tuesday, with many expecting the central bank to deliver a dovish outlook on monetary policy when the meeting ends on Wednesday.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.18% to 95.81.
With many market participants betting on an unchanged interest rate decision from Federal Reserve, the central bank's summary of economic projections as well as the so-called dot plot – showing projections of where each Fed governor expects the interest rates to be at certain points in the future -- are expected to garner the bulk of attention.
In the weeks leading up to the Fed decision, U.S. economic data has pointed to a slowdown in growth, prompting economists to suggest Fed members are likely to rein in their appetite for monetary policy tightening.
The Fed's dot plot released at its December meeting, signaled two rate hikes were in the pipeline for 2019, but with signs of an economic slowdown, economists expect the number of rate hikes on the “dot plot’ of forecasts will fall to only one this year.
The central bank is also expected to mark unveil plans to halt its balance sheet unwind, reinforcing the message that it's "pivoting to neutral," putting both rate hikes and the balance sheet on hold, according to Grant Thornton Chief Economist Diane Swonk.
Despite expectations for a "dovish" Fed, U.S. government bond yields have held up well, keeping a lid on losses in the dollar despite both the euro and pound moving off lows of the session.
GBP/USD rose 0.14% to $1.3275 after hitting a session low of $1.3241. Cable steadied even as Michel Barnier, the EU’s chief Brexit negotiator, warned U.K. Prime Minister Theresa May that the bloc would only favor agreeing to a long extension in return for the UK offering “something new."
May is expected to request an extension from to Brexit from the EU to avoid the U.K. leaving the bloc without a deal on March 29. This comes a day after the prime minister's hopes of securing a last chance saloon vote on her withdrawal deal were derailed by an unexpected intervention from House of Commons Speaker John Bercow.
EUR/USD rose 0.16% after swooping to lows of $1.1355.
USD/CAD trickled 0.18% lower to C$1.3310 as the loonie gave up some gains after oil prices turned negative.
USD/JPY was largely flat at Y111.38 recovering some losses falling an uptick in yen on reports of a hiccup in the U.S.-China trade talks.
Some U.S. officials fear that China is reneging on certain trade concessions, Bloomberg News reported Tuesday afternoon. Other reports said Beijing could walk away from talks amid growing mistrust the U.S. will not lift its tariffs imposed last year on Chinese exports to the United States.