Dollar Lower After U.S. Economic Data; Fed Decision Awaited

The U.S. dollar was lower against its most major opponents in the European session on Tuesday, following the release of mixed reports on U.S. housing and import and export price indices for August. Investors focus on a two-day Federal Reserve meeting beginning today for more clarity about the likelihood of a rate hike in December.

Data from the Commerce Department showed that new residential construction in the U.S. unexpectedly decreased in August.

The report said housing starts fell by 0.8 percent to an annual rate of 1.180 million in August from a revised 1.190 million in July. Economists had expected housing starts to jump by 1.7 percent.

Data from the Labor Department showed increases in U.S. import and export prices in the month of August.

The Labor Department said imports prices climbed by 0.6 percent in August after edging down by 0.1 percent in July. Economists had expected import prices to rise by 0.4 percent.

The report said export prices also rose by 0.6 percent in August following a 0.5 percent increase in the previous month. Export prices had been expected to edge up by 0.2 percent.

Economists widely expect the federal funds rate to be kept on hold when the Fed concludes meeting on Wednesday. The Fed will also release its latest Summary of Economic Projections, followed by a press conference from the Fed Chair Janet Yellen.

The central bank is expected to announce the start of a gradual reduction of the $4.5 trillion balance sheet, which it amassed through purchases of U.S. Treasury debts and mortgage-backed securities during the financial crisis.

Market participants also await the Fed's plan regarding the future key interest rate path in the wake of slowing pace of inflation.

The currency has been trading in a negative territory in the Asian session, with the exception of the Japanese yen.

The greenback reversed from an early near a 2-month high of 111.88 against the Japanese yen, easing to 111.36. If the greenback-yen pair extends slide, 109.00 is possibly seen as its next support level.

The greenback retreated to 1.3537 against the pound, from a high of 1.3469 hit at 4:30 am ET. The next possible downside target for the greenback is seen around the 1.38 region.

The greenback eased back to 1.1993 versus the euro, after a brief recovery to 1.1954 early in the session. This may be compared to an 8-day low of 1.2006 hit at 3:00 am ET. The pair finished Monday's deals at 1.1949.

Survey data from the Mannheim-based Centre for European Economic Research/ZEW showed that Germany's economic confidence strengthened for the first time in four months in September as solid economic growth and increased investment lifted financial market experts' optimism.

The ZEW Indicator of Economic Sentiment rose by a more-than-expected seven points to 17.0 in September. The reading was forecast to rise to 13.

The greenback edged down to 0.7317 against the kiwi and 0.8015 against the aussie, off its early highs of 0.7256 and 0.7955,respectively. Continuation of the greenback's downtrend may see it challenging support around 0.74 against the kiwi and 0.82 against the aussie.

The greenback held steady against the loonie, after weakening to 1.2262 in early deals. The pair was valued at 1.2291 when it finished deals on Monday.

On the flip side, the greenback remained at an early 5-day peak of 0.9648 against the Swiss franc, after having dropped to 0.9595 at 2:30 am ET. On the upside, 0.97 is likely seen as the next resistance for the greenback-franc pair.