Tokyo: The US dollar eased back on Tuesday from a one-week top against a basket of major peers, as traders weighed what kind of message Federal Reserve officials will deliver at Wednesday's monetary policy meeting.
The risk-sensitive Australian and New Zealand dollars rose from one-week lows amid a broad lift in market sentiment, even as a Reserve Bank of Australia policy decision loomed.
"It's certainly a risk-on day, and that's being reflected in currencies with the Aussie and the kiwi topping the leaderboard, but all within recent ranges," said Rodrigo Catril, a currency strategist at National Australia Bank.
"Our general sense is that the dollar probably has peaked, but that doesn't necessarily mean it's coming down." The U.S. dollar index - which measures the greenback against six rivals including the euro, sterling and yen - eased 0.12 per cent to 111.41, eating into some of the 0.79 per cent gains it made on Monday.
The index has fluctuated widely around the 112 level since its retreat from a two-decade high of 114.78 at the end of September.
The safe-haven greenback got some support from overnight losses on Wall Street, but a rise in U.S. stock futures and firmness in Asian stocks, led by China, scuppered that demand on Tuesday. Lower long-term U.S. Treasury yields also removed a crutch for dollar strength.
The Fed is widely expected to raise its benchmark overnight interest rate by 75 bps on Wednesday, its fourth such increase in a row. But for the December meeting, Fed funds futures are split on the odds of a 75- or 50-bps increase.
For the RBA, another 25 basis point hike is fully priced for 0330 GMT, but markets also lay better than 1-in-4 odds for a half point increase.
The Aussie rallied 0.55 per cent to $0.6432, while New Zealand's kiwi gained 0.58 per cent to $0.5848.
The euro added 0.21 per cent to $0.99005.
Pressure remained on the European Central Bank to continue with rate hikes after data on Monday showed euro zone inflation came in hotter than expected at 10.7 per cent, a new record.
The Bank of England is likely to deliver a 75-basis point hike on Thursday.
Sterling jumped 0.32 per cent to $1.1503.
Against the yen, the greenback weakened 0.26 per cent to 148.35.
On Monday, Japan's finance ministry said it spent a record $42.8 billion on currency intervention this month to prop up the yen after it dropped to 32-year lows near 152 on October 21.