The euro held below a three-month high against the dollar amid speculation the U.S. Federal Reserve might announce more steps to check a recent rise in bond yields later on Wednesday.
The single currency rose 0.15% to $1.1354, just shy of 1.1384, its highest against the greenback since March 10.
Earlier this month hopes that the U.S. economy could recover faster than expected had propped up yields of U.S. government bonds to their highest level in nearly three months and pushed up the dollar.
In that context, some investors believe there is a possibility that the Fed, which is not expected to change its interest rate policy, could decide to adopt yield curve control measures to guide 10-year Treasury yields lower.
"We do not expect yield curve control to be adopted at tonight’s meeting but we would not be surprised if markets this evening are left with a view that it is a policy under most serious consideration as a strong, powerful form of forward guidance and is likely to be introduced later in the year", MUFG Bank analysts wrote to their clients.
In the meantime, the uncertainty about the outcome of the Fed meeting is likely to keep the dollar under pressure as a lot is at stake for currency traders.
"Anyone who wants to know what that means for the U.S. dollar long term simply has to take a look at the JPY (yen) and how it acts as the ultimate safe haven in times of crisis - more so than even the dollar", Commerzbank analyst Thu Lan Nguyen commented.
U.S. central bankers on Wednesday will also publish their first economic projections since the coronavirus pandemic plunged the country into recession.
Estimates are expected to signal a collapse in output this year and near-zero interest rates for the next few years.
The Australian and New Zealand dollars extended their recent rally against the greenback as investors continue to cheer a resumption of economic activity in both countries following the lifting of coronavirus restrictions.
The Australian dollar rose 0.46% to $0.6990, just shy of an 11-month high. The New Zealand dollar also rose 0.5% towards its highest since late January.
The dollar fell to 107.37 yen on Wednesday following a 0.6% decline in the previous session.
Elsewhere in Asia, the Chinese yuan slightly pulled back from its highest level in a month and a half.