Euro rises slightly ahead of big US Fed news

The US dollar. (AFP/Mark Wilson)

NEW YORK: The euro was lifted on Tuesday by strong German economic data, but traders avoided big bets ahead of the resolution of a much-anticipated US Federal Reserve meeting.

Near 2100 GMT Tuesday, the euro traded at $1.3356, up from $1.3337 Monday.

The euro also rose to 132.38 yen from 132.20 yen.

The dollar was nearly flat against the yen, trading at 99.14 from 99.11 the day earlier.

An index of German investor confidence released by the ZEW economic institute rose by 7.6 points to 49.6 points in September, the highest level since April 2010.

Some economists expressed skepticism at the strong ZEW data in light of other recent economic data.

But analysts also said currencies were unlikely to see significant movement ahead of Wednesday's finale to a two-day meeting of the Fed's Federal Open Market Committee.

The Fed is widely expected to scale back its $85 billion per-month bond-buying programme.

While any tapering of the Fed programme would strengthen the dollar, analyst Kathy Lien of BK Asset Management said the Fed would no doubt take steps to avoid an extreme market reaction.

"Easing should be positive for the dollar but investors can't assume that the dollar will automatically rally post FOMC," Lien said. "Strategically, the Fed will most likely strive to underwhelm, with the hopes of limiting any rise in yields, collapse in stocks and rally in the US dollar."

Lien expects Fed Chairman Ben Bernanke to scale back purchases by a relatively modest $5-$10 billion per month and to explicitly say the Fed will increase bond purchases again if the economy weakens.

The British pound rose to $1.5904 from $1.5897.

The dollar fell to 0.9259 Swiss francs from 0.9272.