[TOKYO] The dollar held firm against major currencies on Wednesday as traders look to whether the US Federal Reserve will indicate faster monetary tightening this year, with the first rate increase of 2018 almost unanimously expected later in the day.

The dollar index stood at 90.39, after having risen to 90.446 on Tuesday, its highest in almost three weeks.

Still, broadly speaking, the index has been in a holding pattern between 90.934 and 89.399 so far this month.

One key focus for the policy-setting Federal Open Market Committee (FOMC) is whether policy makers will forecast four rate hikes this year, instead of the median three hikes seen in December's quarterly forecast.

Followed by the announcement at 2pm (1800GMT), the new Fed Chair Jerome Powell will hold his first news conference as Fed chief at 2.30pm (1830GMT)

"Markets have taken a very hawkish turn with respect to the FOMC in recent days. One big tell is that 2-year yields and expected rates in fed funds futures markets went up yesterday despite the absence of economic data and a seriously downbeat equity market," wrote Steven Englander, head of research at Rafiki Capital Management.

The two-year yield jumped to 9 1/2-year high of 2.349 per cent on Tuesday.

As the US currency firmed, the euro traded at US$1.2247, having fallen 0.78 per cent on Tuesday and hitting a near three-week low of US$1.2240.

The Swiss franc also hit a two-month low of 0.9570 franc to the dollar.

Against the yen, the dollar stood at 106.53 yen, after Tuesday's gains of 0.41 per cent, though trading was slow due to a public holiday in Tokyo.

The British pound was off Monday's one-month peak after UK inflation slowed more than forecast in February, the first of several sets of data in a week when the Bank of England is expected to signal interest rates will rise as early as May.

The pound traded at US$1.4000, having slipped 0.18 per cent on Tuesday and off further from Monday's high of US$1.4088.

The Hong Kong dollar hit a 33-year low of 7.8452 per dollar early on Wednesday morning, inching closer to the lower end of the monetary authority's targeted trading band, as the interest rate gap between the US and Hong Kong benchmarks widened further.

The Australian dollar hit a three-month low of US$0.7679 on Tuesday and last stood at US$0.7686, having fallen 2.4 per cent in the past week.

"Having spent most of this month quietly strengthening (thanks in part to the promise that Australia would be spared US steel and aluminium tariffs) the last three days has seen the AUD come under pressure as investors have considered Australia's exposure to Asian markets in general and China in particular," said Simon Derrick, chief currency strategist at BNY Mellon in London.

Given the Aussie looks set to lose its relative yield appeal versus the dollar, the currency looks vulnerable to further deterioration in the sentiment towards China, he added.

REUTERS