The US dollar broadly weakened against most major counterparts on Tuesday as a result of rising expectations that the FOMC has little choice but to downgrade its economic view on the American economy at the Federal Reserve policy meeting on Wednesday and will maintain quantitative easing.
Also hurting the dollar was economic data indicating a slowdown in business activity. The Chicago PMI was softer and markets chose to ignore the better housing data.
There is growing speculation that at Wednesday’s Fed policy statement, Fed Chief Ben Bernanke could remove language that points to asset-purchase tapering this year.
The Fed currently purchases $85 billion bonds a month. Such measures flood the system with money and tend to weaken the dollar.
EURUSD jumped to $1.3186 and consolidated around $1.3150 as Europe wound down ahead of a public holiday on Wednesday where most markets will be closed.
USDJPY fell hard after the disappointing US data on Chicago PMI but bidders took the pair right back to 97.40.