Upcoming Fed decision keeps lid on USD gains

The USD fell against the EUR and is trading slightly lower ahead of the latest FOMC statement regarding short-term U.S. interest rates. The market expects a repeat pledge to keep interest rates very low for a long time, encouraging investors to buy riskier assets. There is also likely to be pressure from some regional Fed Presidents to signal a tighter policy, and more significant support for a slight change to the language used by the Fed. The dollar index (DXY), which measures the U.S. unit against a trade-weighted basket of six major currencies, fell to 79.916 from 80.240 in late US trading Monday and remains mostly unchanged.

Also pressuring the dollar was US housing starts. The Commerce Department reported that housing starts fell 5.9 percent in February, from a seasonally adjusted annual rate of 611,000 to 575,000, while permits for new construction dropped 1.6 percent, from 621,000 to 612,000.

The euro is also in a holding pattern ahead of the FOMC statement and in the wake of an announcement from EU finance ministers that an emergency financial support facility would be established in the event Greece is unable to resolve its debt crisis. The announcement of the facility follows rumors of a Greek bailout involving use of German banks to buy Greek government debt. That would have enabled the German government to circumvent regulations prohibiting states from bailing out other eurozone members. The euro traded at $1.3730, up from $1.3674 late Monday.