By Scott Kanowsky
Investing.com -- The dollar moved slightly lower on Wednesday, as traders gear up for a crucial Federal Reserve policy decision scheduled for later in the day.
As of 02:34 EST (0634 GMT), the dollar index - which measures the greenback against other major currencies - was down by 0.14% at 107.04. The level is not far off from its two-decade high of 109.290 reached earlier this month.
Investors are waiting to see the extent the U.S. central bank will go to combat inflation, as concerns remain that aggressive Fed rate hikes will instead weigh on growth.
Policymakers are mulling over consumer prices running at 40-year highs, along with a recent batch of weak economic data. On Tuesday, U.S. consumer confidence tumbled to its lowest mark in almost a year and a half, while new home price growth and sales of new houses both slowed.
Markets have largely priced in a 75 basis point increase, with only a small chance of a jumbo 100 basis point raise. Focus will turn as well to comments from Fed chair Jerome Powell, who is expected to speak at a news conference at 1830 GMT on Wednesday.
Meanwhile, the euro recovered some ground versus the dollar after it declined by 1% overnight to $1.0108 - the sharpest fall since July 11. The common currency rose by 0.19% to $1.0137 in early morning European trading.
Weighing on sentiment around the euro are fears that broader European economic activity may be hit by a reduction in Russian gas supplies. Westward flows out of the key Nord Stream 1 pipeline dropped on Tuesday and are expected to fall further on Wednesday.
Elsewhere, the AUD/USD was holding steady near the flatline ahead of the Fed decision, which is expected at 02:00 EST (1800 GMT). Traders are also eyeing the latest headline inflation data out of Australia, which showed consumer prices rose at their fastest pace in 21 years.
The pound firmed marginally against the dollar, with another key rate decision expected from the Bank of England due out next week.