Dollar's Position: Pre-Fed Policy Meeting Tweaks in Focus

The dollar declined against the yen as investors adjusted positions ahead of the expected initiation of a U.S. easing cycle. The Federal Reserve is likely to announce its first interest rate cut in over four years. Market movements suggest a cautious sentiment, with key global currencies reacting variably amid economic forecasts and policy expectations.

The dollar shed some of its overnight gains against the yen on Wednesday, as investors made last-minute tweaks to positions ahead of a policy meeting expected to initiate a U.S. easing cycle. The Federal Reserve is expected to make its first interest rate cut in more than four years at 1800 GMT, with markets pricing a 61% probability of a 50 basis point cut.

Elsewhere, the Australian dollar traded at a two-week top at $0.6778, while a rise in milk prices supported the New Zealand dollar at $0.62155, though moves were tentative ahead of the Fed's meeting.

Sterling, the best performing G10 currency of the year, gained slightly at $1.3204 with its rally being driven by signs of a steadying economy and sticky inflation. British inflation stood at an annual rate of 2.2% in August, unchanged from July, but price growth in the services sector - closely watched by the Bank of England - picked up, official figures showed. Final European inflation figures are also due, however, they are not expected to deviate much from preliminary August figures and so all eyes will be on the Fed.

(With inputs from agencies.)