The U.S. dollar fell against its most major rivals in early New York deals on Tuesday, as the Federal Reserve starts two-day monetary policy meeting today, when Fed members debate timing of rate hike since 2006.
The Fed will announce decision at 2:00 pm ET Wednesday. Although bank will maintain its federal funds rate at 0.25 percent, investors are keen over whether it would drop a promise to be "patient" with rate increases. Scrapping it would open the door to a rate increase following two meetings.
As inflation remains below optimal levels, in contrary to strong labour market, economists are divided on the outlook for higher rates.
The Fed chairwoman Janet Yellen previously stressed that the central bank won't raise rates until it is "reasonably confident" that inflation will move back toward its 2 percent target.
New residential construction in the U.S. showed a substantial decrease in the month of February, according to a report released by the Commerce Department.
The report said housing starts plummeted by 17.0 percent to an annual rate of 897,000 in February from the revised January estimate of 1.081 million.
The greenback dropped to 1.0650 against the euro, its weakest since March 12. The next possible support for the greenback is seen around the 1.10 mark.
Eurozone consumer prices remained negative for the third month in February as initially estimated, final report from Eurostat showed.
The harmonized index of consumer prices fell 0.3 percent in February from last year, slower than January's 0.6 percent decline.
Pulling away from an early 4-day high of 121.51 against the yen, the greenback fell back to 121.09. Continuation of the greenback's downtrend is likely to lead it to a support around the 120.00 area.
Following the conclusion of its 2-day Monetary Policy Board meeting, the Bank of Japan announced Tuesday its decision to keep its monetary policy unchanged. By a 8-1 majority vote, the bank opted to maintain its policy of conducting market operations so that the monetary base will increase at an annual pace of 80 trillion yen.
The greenback drifted down to a 5-day low of 1.0009 against the Swiss franc, after having climbed to a 4-day high of 1.0090 in early deals. Next key support for the greenback may be located near the 0.95 zone.
Meanwhile, the greenback held steady against the pound, after reaching as high as 1.4725 at 9:30 am ET. The pair ended Monday's trading at 1.4825.
The leading economic index in the UK, which measures the future economic activity, increased at the start of the year, figures from the Conference Board showed.
The Conference Board leading economic index rose 0.2 percent in January, after staying flat in the previous month.
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