The US dollar strengthened on Wednesday in a weak trading environment as investors focused on the Federal Reserve's policy decision next week, while the euro traded just below a nine-month high.
The euro traded 0.14% lower against the US dollar at 1.0872, down from the $1.093 level reached on Friday, which was the highest since early May.
Meanwhile, the US dollar was down 0.32% against the yen, at 129.74 yen per dollar, after hitting an 8-month low of 127.22 on Jan 16.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said the market was a bit quiet following the Lunar New Year holiday and the Fed meeting approaching. "Most of Asia is still on vacation," said Tan. "We are also of the view that the Fed's policy decision coming soon will make the market a little cautious."
Falling global energy prices and slowing inflation in advanced economies have fueled speculation the Fed and other central banks may soon stop raising interest rates.
Those expectations have caused the dollar index, which surged on the back of last year's Fed rate hike, to fall more than 11% from September's 20-year high of 114.78.
Markets generally expect the Fed to raise rates by 25 basis points (bps) next Wednesday, down from a 50 basis point increase in December. Before that, investors will be looking at the fourth quarter U.S. economic growth figures, which are scheduled to be published tomorrow.
Data on Tuesday showed business activity in the European zone returned to moderate growth in January. Expectations of further rate hikes by the European Central Bank have also supported the growth of the Euro.
German business sentiment also reportedly improved in January, according to Ifo Institute survey data released today, as inflation eased and the outlook looked brighter. On the other hand, U.S. business activity contracted for the seventh straight month in January.
The Australian dollar rose to a more than five-month high on Wednesday after warmer-than-expected inflation data strengthened the case for further rate hikes from the Reserve Bank of Australia.
The AUD currency strengthened 0.33% to trade at 0.7070 against the US dollar. Meanwhile, the kiwi fell 0.54% to $0.647, after New Zealand's annual inflation of 7.2% in the fourth quarter came in below its central bank's forecast of 7.5%.
