The euro rose on Tuesday as the dollar weakened, with investors betting that growth concerns will prompt the Federal Reserve to slow its pace of interest rate hikes at this week’s meeting.
A rout on Wall Street following a spate of weak data globally has strengthened the view that the Fed's widely-expected rate hike on Wednesday will usher in a slowdown, or even a pause, to three years of steady rate increases.
The prospect of a 'dovish rate hike' is keeping the dollar - this year's best performing major currency - in check.
That is helping the euro, which on Tuesday was up 0.2 percent at $1.1373, having recovered all of its losses from Monday when it was hit by weak euro zone data.
Markets will scrutinise the Fed’s two-day policy meeting, which starts Tuesday, for its sense of how the economy is holding up amid a U.S.-China trade conflict and global financial market volatility.
The mood on Tuesday was less positive for the greenback with the dollar index 0.2 percent lower at 96.931 after losing 0.4 percent on Monday.
The yen gained about 0.3 percent on the dollar as investors’ fears of slowing global growth increased demand for safety assets. The Swiss franc, another safe haven, also tacked on 0.2 percent.
Sterling, which has been heavily sold off in the past few months on Brexit uncertainty, held steady at $1.2653.