The dollar index, which measures the U.S. currency against six other major currencies, was last down 0.12% at 103.35. It has risen around 2% this year as the U.S. economy has fared better than expected, causing investors to rein in their bets that the Fed will cut rates quickly and deeply in 2024.
Markets are now pricing in 73 basis points of cuts this year, down from around 140 bps at the start of the year, with around a 60% chance of the first-rate cut coming by June, according to LSEG data.
The focus on Wednesday will be on whether Fed policymakers change their projections of rate cuts, or dot plots, for the year. The Fed in December projected 75 basis points of easing in 2024.
The dollar was little changed against the Japanese yen at 149.07 yen per dollar.
Whirlwind few weeks
The yen has had a whirlwind few weeks, weakening to 150.88 to the dollar last month. It then rebounded to a one-month high of 146.48 at the start of March, on the back of stronger-than-expected economic data and rising bets that the BOJ is preparing to end eight years of negative interest rates.
Bigger-than-expected pay hikes by major Japanese firms cemented expectations that the central bank will exit its ultra-loose monetary policy, potentially as soon as at its meeting on Tuesday.
“If the BOJ is not going to move then the Bank has done a poor job of damping expectations,” said Colin Asher, senior economist at Japanese bank Mizuho in London. “Not moving now would likely spur more volatility than moving.”
The euro last bought $1.0904, up 0.15%, while sterling was unchanged at $1.2738 ahead of the Bank of England meeting on Thursday when the central bank is expected to hold rates at 5.25%.
Australia’s central bank is due to meet on Tuesday and is widely expected to hold rates steady. The Australian dollar was 0.17% higher at $0.6571.
The dollar was down 0.14% against the Swiss franc at 0.8825 francs. Some investors think the Swiss National Bank could cut interest rates on Thursday, with inflation having long been within its 0-2% target range.