The dollar edged higher Tuesday, shrugging off mixed economic data showing inflation remained close to Federal Reserve's target as the two-day Fed meeting kicked off.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.16% to 94.28.
The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.1%, in June in line with forecasts, but rose 1.9% in the 12 months through June, lower than economists’ estimates.
The slower pace of inflation did little to alter investor rate-hike expectations, despite calls from analysts suggesting the Fed may have to consider reining in rate hikes if inflation pressures continue to come up short.
"The Fed can continue on its path of gradual rate hikes for now, but unless inflation pressures start to build, they may have to scale back their forecasts of how high interest rates actually need to go in this business cycle," said MUFG Union Bank.
According to 's Fed Rate Monitor Tool, 96.9% of traders expected the Federal Reserve to stand pat on interest rates on Wednesday, unchanged from a day earlier.
The dollar started the session on the front foot, helped by a slump in the yen after the Bank of Japan left its loose monetary policy measures mostly unchanged but said it would allow fluctuating long-term rates between zero and 0.2%, depending on economic and price developments.
Japan 10-Year bond yields retreated from highs on the news, pressuring the yen, as market participants had been speculating in the run up to the BoJ announcement that the central bank could take a more aggressive stance on policy tightening.
USD/JPY rose 0.68% Y111.82.
Elsewhere, GBP/USD fell 0.03% to $1.3129 as traders weighed expectations for a Bank of England rate hike on Thursday and ongoing Brexit uncertainty.