The US dollar hovered near a 10-month low against a basket of currencies on Wednesday but investors were wary of pushing it lower before major central bank meetings.
Both the European Central Bank and the Bank of Japan are meeting this week and market watchers are wary that the recent strength in the euro and the yen may prompt them to strike a dovish stance, prompting a rebound in the dollar.
“The dollar has moved a fair bit in a very short period of time against these currencies and any hint of dovishness may trigger a sharp rebound,” said Michael Hewson, chief market analyst at CMC Markets.
The dollar has come under pressure as Republican legislators' failure to pass a stalled healthcare Bill raised fears for the rest of President Donald's Trump reform agenda.
The index which tracks the greenback against a basket of six major rivals, edged up 0.1 per cent to 94.74 after falling as low as 94.476 on Tuesday, its lowest level since September 2016.
The euro inched 0.2 per cent lower to $1.1534, after rising as high as $1.1583 on Tuesday, its highest since May 2016.
The European Central Bank will hold a policy meeting on Thursday, with participants seen likely to adjust their language as they edge the ECB towards normalising policy.
Such adjustments may include dropping a reference to the bank's readiness to increase the size or duration of its asset-purchase programme before announcing in the autumn how and when it will start winding down its bond-buying.
The ECB, keen to retain flexibility in case the outlook sours, is set to keep its asset purchases open-ended rather than setting a potentially distant date on which bond-buying will stop, three sources familiar with the discussion said.
The Bank of Japan will also conclude a policy meeting on Thursday. Policymakers are expected to raise their economic growth forecasts but cut their rosy inflation outlook, sources say, reinforcing expectations it will lag well behind major global central banks in dialling back its massive stimulus programme.
The US dollar has been hit by sub-forecast inflation and retail readings from the United States as well as the growing doubts about President Trumps ability to get any major economic stimulus legislation through Congress.
Morgan Stanley strategists note that positioning in the US dollar is the most bearish since April 2009, suggesting that it may be ripe for a reversal.