Dollar weakens in tentative trade ahead of Fed decision

The dollar was broadly weaker in cautious Tokyo trade Wednesday, ahead of a US interest rate decision this week that could see the first hike in almost a decade.

The greenback fell to 120.18 yen from 120.40 yen Tuesday in New York, and the euro rose to $1.1295 from $1.1272, while battered emerging market currencies also gained.

The single currency also gained to 135.74 yen from 135.71 yen.

Economists are split over whether the US central bank, at the end of a two-day meeting Thursday, will raise rates for the first time since 2006.

Financial markets are pricing the likelihood of a hike at around 32 percent, Bloomberg News said, a sharp drop from before Beijing devalued the yuan in August when the majority of dealers expected a September move.

While the Fed has signalled it will raise rates this year, the odds on a rise this month have dropped as concerns have mounted about slowing growth in China and its impact on the world economy.

"Nobody's sure about the Fed," said Kim Youngsung, the head of overseas investment at South Korea's Government Employees Pension Service.

"If they're concerned about the Chinese economy or the global economy, including emerging markets, probably the Fed will delay," Kim told Bloomberg News.

"Just looking at the US data, it's okay to increase the rate."

Asia-Pacific currencies including the Singapore dollar and the Malaysian ringgit, which have been battered by concerns over China and the strengthening of the dollar in recent months, also rose on Wednesday.

Higher rates would tend to strengthen the greenback, and could severely hurt emerging markets as investors draw their cash out and turn to the US looking for better, safer returns.

The South Korea won rallied 0.63 percent a day after the Standard & Poor's ratings agency raised the country's credit rating.

The Australian dollar bought 71.43 US cents Wednesday in Tokyo, up from 71.22 on Tuesday.

The Chinese yuan fetched 18.86 yen against 18.18 yen.