Dollar Falls On Improved Sentiment; Fed Meeting In Focus

The U.S. dollar dropped against its major counterparts in the European session on Monday, as encouraging China data suggested that economic recovery is gathering pace and investors awaited the Federal Reserve's two-day policy meeting for more cues on new inflation targeting strategy.

China retail sales rose for the first time this year and industrial output accelerated in August, helping lift investor sentiment.

The Fed begins its two-day meeting later in the day. Although the central bank is expected to leave its rate and QE unchanged, market participants await further details of its plans on inflation targeting.

The FOMC will release the Summary of Economic Projections, including the dot plot through 2023.

The Bank of Japan and the Bank of England will deliver their policy decisions on Thursday.

Today's economic calendar includes U.S. industrial production and export and import prices for August as well as New York Fed's empire manufacturing index for September.

The greenback dropped to 1.2913 against the pound, compared to Monday's closing value of 1.2846. On the downside, 1.31 is likely seen as the next support for the greenback.

Data from the Office for National Statistics showed that UK payroll employment declined and the unemployment rate advanced in three months to July.

The jobless rate came in at 4.1 percent in three months to July, which was 0.2 percentage point higher than the previous quarter. The rate came in line with expectations.

The greenback fell to 1.1900 against the euro, its weakest since September 10, and held steady thereafter. The greenback is seen finding support around the 1.20 level.

After rising to 0.9089 at 8:15 pm ET, the greenback pulled back to a 5-day low of 0.9054 versus the Swiss currency. Next key support for the greenback is possibly seen around the 0.88 level.

Data from the Federal Statistical Office showed that Switzerland's producer and import prices declined in August.

Producer and import prices fell 3.5 percent year-on-year in August.

The greenback extended its decline against the kiwi, hitting nearly a 2-week low of 0.6736. The greenback is poised to find support around the 0.70 area.

The greenback pared gains to 105.63 versus the yen, from a high of 105.81 seen at 5:00 am ET. The greenback is likely to find support around the 104.00 region.

The U.S. currency held steady versus the aussie and the loonie, after having dropped to nearly a 2-week low of 0.7336 and 5-day low of 1.3135, respectively in early deals. The greenback had ended Monday's trading at 0.7288 versus the aussie and 1.3175 against the loonie.

U.S. industrial production and export and import prices for August and New York Fed's empire manufacturing index for September will be released in the New York session.