Dollar falls on euro as Fed meets

The dollar fell against the euro Tuesday as the Federal Reserve opened a two-day meeting keenly watched for signs that the US central bank could move up plans for tightening monetary policy.

The euro hits its best level against the greenback since December 2011, at 2200 GMT, trading at $1.3493 compared to $1.3454 late Monday.

No major new decisions were expected from the Fed Wednesday in the wake of December's momentous meeting, in which it expanded its bond-buying program and set explicit unemployment and inflation targets for raising interest rates.

But with four new members rotating onto the Federal Open Market Committee and the notes from the last meeting showing increasing concerns over inflation, analysts will be looking for any nuance on its view of economic strength.

"There is heavy debate amongst traders as to when the Fed's quantitative easing program will slow or come to an end alongside evidence that the US economy is improving gradually," said Renee Mu at DailyFX.

"The Fed, though, with new voters is less likely to stop its asset buying within the first half of 2013."

Yet the dollar's steady fall since early November has not been matched by the bond market, where prices have dropped sharply in the past week and yields surged as bond investors anticipate an early tightening of monetary policy.

"Expectations for the Fed have shifted significantly in the past couple of weeks, which in turn has moved the bond market," said Chris Low at FTN Financial.

"The market now expects the Fed will raise rates in Q4, 2014."

The yen was mixed Tuesday. The dollar fell marginally to 90.72 yen from 90.82 yen, while the euro bought 122.42 yen, up from 122.20.

The pound ended its losing streak, picking up to $1.5758 from $1.5692. The dollar fell to 0.9212 Swiss francs from 0.9259 francs.