By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar slipped versus most major rivals on Wednesday as investors awaited the outcome of the Federal Reserve’s two-day policy meeting, while keeping an eye on developments in Greece after an unexpected call for a bailout referendum crushed risk appetite the previous day.
The dollar index DXY -0.41% , which measures the performance of the greenback against a basket of six currencies, traded at 77.030, compared to 77.298 in late North American trading on Tuesday.
The central bank’s Federal Open Market Committee will conclude its two-day meeting Wednesday, announcing any policy decisions at 12:30 p.m. Eastern. Fed Chairman Ben Bernanke will host a news conference at 2:15 p.m. Eastern.
“No policy changes are expected, but investors will be listening for any shift on his stance on QE3,” or a third round of quantitative easing, said Chris Walker, strategist at UBS.
But some analysts warned that recent market turmoil increases the risk that the Fed makes a move.
“The volatility in the markets pushed the Reserve Bank of Australia to lower interest rates [this week] and the Federal Reserve could be spooked into similar action,” said Kathy Lien, director of currency research at GFT.
“Of course, there is no room to move on rates in the U.S., but the Federal Reserve could increase the size of their asset purchase program or change their communications strategy,” she said.
The euro fell to its lowest level against the dollar in almost a month on Tuesday after Greek Prime Minister George Papandreou spooked markets on Monday by announcing a confidence vote as well as a referendum on Europe’s latest rescue plan. Papandreou is set to meet with European leaders, who appeared blind-sided by the move, in Cannes, France, Wednesday a day ahead of the Group of 20 summit.
The euro EURUSD +0.56% traded at $1.3774 on Wednesday, up from the $1.3712 level reached in late North American trading Tuesday.
“Headline risk remains acute as German Chancellor [Angela] Merkel and French President [Nicolas] Sarkozy speak with the Greek government, the International Monetary Fund and their European partners ahead of a Group of 20 summit,” said Sue Trinh, strategist at RBC Capital Markets.
Sterling GBPUSD +0.26% reached $1.5982, from $1.5963 in late trading Tuesday, while the dollar USDJPY -0.42% bought 78.01 yen, down from ¥78.34 Tuesday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
