By Omer Esiner of Travelex

The dollar slid against most major currencies early Tuesday, largely on market-positioning ahead of the Federal Reserve's policy announcement due out around 2:15 p.m. EDT.

The Federal Open Market Committee, the U.S. central bank's policy-setting team, is widely expected to leave its benchmark interest rate, known as the federal funds rate, unchanged.

In its accompanying statement, the FOMC is expected to repeat its vow to leave the federal funds rate unchanged for an "extended period."

Investors will study the Fed's statement for its latest assessment of the U.S. economy and to see whether it alters its language on the outlook for monetary policy. A more hawkish tone would support the dollar.

The Canadian dollar kept near recent 20-month highs against the greenback. The Canadian dollar has been bolstered in recent sessions by solid domestic data that have indicated a recovery is gaining traction. Modestly firmer oil prices of more than $80 a barrel are also buoying the loonie.

The euro was boosted by a smaller-than-expected decline in German investor sentiment in March. Still, Europe's common currency remains vulnerable to selling pressure given Greece's precarious budget situation.

USD: U.S. housing starts fell 5.9% month over month in February to an annualized rate of 575,000 units, which was a little better than forecast. Housing starts were adversely impacted by severe winter weather during February. U.S. import prices fell 0.3% month over month in February, which was a touch worse than the forecast for a 0.2% decline. Following these reports, the dollar was little changed near session lows.

CAD: The Canadian dollar extended gains against the buck after Canadian manufacturing sales increased by 2.4% month over month in January from an upwardly revised 1.9% in the previous month. Investors had expected a more modest rise of 0.5% in January. The strong report offered fresh evidence of an improving Canadian recovery and bolstered the loonie.

EUR: The euro rose in early trading on Tuesday, finding support from a modestly softer greenback and from a smaller-than-expected fall in German investor sentiment this month.

Germany's ZEW index eased to 44.5 in March from 45.1 in February. Investors had expected a steeper decline this month to 43.7. Germany's key gauge of analyst sentiment has fallen for six straight months.

Despite its firmer tone this morning, the euro is likely to have a tough time sustaining a meaningful rebound until European finance leaders announce concrete plans on a potential rescue package for Greece and its festering budget crisis. Finance ministers from the 16-member bloc gathered on Tuesday in Brussels to discuss a potential bailout for Greece. However, to this point, officials have vowed little more than verbal assurances of support.

JPY: The Japanese yen declined against an otherwise weaker dollar on Tuesday. The yen has been under pressure ahead of a two-day Japanese central bank meeting that got started earlier on Tuesday.

Given Japan's battle against deflation, investors see scope for the Bank of Japan to move in the opposite direction of most global central banks and ease monetary policy.

With Japanese benchmark rate already near zero, Bank of Japan officials would likely have to increase quantitative easing measures to bolster the country's fragile economy. Still, the yen's downside could be limited as the currency tends to be supported at this time of the year as Japanese corporations repatriate overseas profits ahead of the March 31 fiscal year-end.

AUD: The Australian dollar inched toward last week's seven-month peak against the dollar after the release of the minutes from Australia's last central bank meeting pointed to gradual interest rate increases in the coming months.

At its early March gathering, the Reserve Bank of Australia boosted its benchmark cash rate by 25 basis points to 4%, which marked its fourth rate hike since October. The Australian economy emerged relatively unscathed from the global financial crisis, helped by a buoyant housing market, a banking sector in decent shape and healthy demand from China for Australia's key commodity exports.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.

You can view his daily reports, recording briefings, and quarterly reviews posted here. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.