LONDON—Currency markets traded in choppy fashion in European hours Wednesday, with the dollar mostly weaker ahead of U.S. manufacturing and jobs data and the conclusion of the Federal Open Market Committee's policy-setting meeting.
A European Central Bank policy update is still to come Thursday.
The greenback fell to a four-month low against the Australian dollar, a three-month low against the New Zealand dollar and moved close to parity against the Canadian dollar in the run-up to U.S. Federal Reserve's interest-rate announcement due at 1815 GMT.
Weakening U.S. economic momentum and mounting euro-zone concerns have raised market expectations that the Federal Reserve will embark on another round of bond buying to stimulate the world's largest economy. Several analysts and economists have said, however, it is unlikely the Fed will launch a third round of so-called quantitative easing, or QE3, this month.
"The Committee is not quite ready in our view to move ahead with a major new expansion of its balance sheet but will likely try to provide market-friendly guidance," economists at Citigroup said.
Before the FOMC, attention will be on U.S. ADP employment figures at 1215 GMT and the U.S. ISM nonmanufacturing report at 1400 GMT.
The dollar fell to a two-month low against the yen in Asian trading before gaining back some ground in European hours as intervention concerns scared off speculative buyers of the Japanese currency. The buck was also under mild pressure against the euro despite data showing euro-zone factory activity fell at its steepest rate in more than three years in July and export orders plunged despite a weakening euro.
ECB President Mario Draghi pledged last week to do "whatever it takes" to keep the currency area intact, driving market expectations that action might be taken. However, Jens Weidmann, a member of the ECB's rate-setting Governing Council, was keen to stress Wednesday that the ECB "should be aware" that its independence "also requires it to respect and not overstep its own mandate."
Elsewhere sterling started August poorly as more evidence of dismal economic data emerged. U.K. house prices fell in July for the fifth time this year, while data showing the contraction in the manufacturing sector deepened sharply last month to its lowest since May 2009, driving the pound to a two-week low against the euro. The weakening comes ahead of Thursday's Bank of England rate decision.
The Swedish krona hit an almost 12-year high against the euro after data showed Swedish purchasing managers' index rose in July helped by rising orders and production.
Around midday in Europe, the euro was trading at $1.2317 against the dollar, compared with $1.2304 late Tuesday in New York. The dollar was at ¥78.16 against the yen, compared with ¥78.12, while the euro was at ¥96.23, compared with ¥96.11. Meanwhile, the pound was trading at $1.5629 against the dollar, compared with $1.5676 late Tuesday in New York.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 71.62 from 71.67.
