Investors are pricing in a near 100% chance for a quarter percentage point increase to the Fed's target range.
The US Federal Reserve, the country's central bank, is slated to start a two-day meet on Tuesday, to decide on an interest rate hike that has been a part of the talks for quite some time now.
While the dollar inched higher on Monday ahead of the US Federal Reserve's meeting that was expected to deliver an interest rate hike, investors will also be looking out for clues on future monetary policy. The euro remained under pressure after the European Central Bank's dovish moves last week.
AT A GLANCE
- Fed expected to hike at two-day meeting beginning on Tuesday
- Euro under pressure after ECB extends bond purchases
- Long dollar positions continue to rise-IMM data
The US central bank is widely expected to hike interest rates for the first time in 2016 even as investors wait to see if policymakers take a more cautious tone on the economy.
Markets were pricing in a nearly 100% chance for a quarter percentage point increase to the Fed's target range. Investors will be scrutinising the Fed's economic projections for signs of any change following Donald Trump's surprise victory in the US presidential election on November 8.
"As we have been saying, it's not so much about what the Fed does, but more about what they say," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
Investors have continued to build up long dollar positions on expectations of higher inflation with increased infrastructure spending under the Trump administration.
"Part of the positioning is also seasonal, as some players try to accumulate long dollar positions ahead of the Christmas holiday," Murata added.
Speculators increased positive bets on the US dollar for a third straight week through December 6, pushing net longs to their highest since early January, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The dollar edged up 0.1% to 115.43 yen after earlier touching 115.55 yen, its loftiest peak since February.
The euro slipped 0.2% to $1.0541, moving closer to the $1.0505 level that would mark its lowest point in around 21 months.
The common currency remains under pressure after the European Central Bank announced on Thursday that it will extend its bond-buying program longer than many investors had anticipated, although it trimmed the size of its monthly purchases.
The ECB's move also put more upward pressure on already rising US Treasury yields, which also bolstered the dollar's appeal.
The benchmark 10-year Treasury note yield was last at 2.491%, above its US close of 2.464% on Friday and closing in on its nearly 1-1/2 year peak set on Dec. 1.
The dollar index, which tracks the greenback against a basket of six major rivals, was 0.1% higher on the day at 101.65.
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