Forex - Dollar drops ahead of Federal Reserve meeting

Investing.com - The dollar fell against most major world currencies on Tuesday ahead of the Federal Reserve's upcoming monetary policy meeting, as markets awaited signs if the U.S. central bank plans to stimulate the economy via easing measures.

The euro rose amid bottom fishing as well, which further pressured the greenback down slightly

In Asian trading on Tuesday, EUR/USD was trading up 0.17% at 1.2599.

Bottom fishers brought the European currency up after soaring yields in European government bond auctions sent the euro down earlier.

In Spain, the yield on the 10-year note shot up above 7%, the highest since the launch of the euro.

Yields at around 7% tend to depict a country in need of a bailout, similar to ones arranged for Greece, Ireland and Portugal.

Eurozone finance ministers recently arranged a EUR100 billion bailout facility for Spain to use to recapitalize its banks, but talk the country itself will need rescuing continued to grow.

Meanwhile in Italy, the yield on Italian 10-year notes hit 6.10% on concerns that sovereign debt contagion was headed towards the eurozone’s fourth largest economy.

High borrowing costs offset market-friendly Greek elections, where the conservative New Democracy political party edged out the leftist Syriza on Sunday.

The results reflected a view that Greeks want to stick with the euro.

Talk the Federal Reserve will intervene to stimulate a sagging economy weakened the greenback, either through outright bond purchases from banks, known as quantitative easing, or by extending a $400 billion program shuffling up its Treasury holdings, known as Operation Twist.

Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasurys in tandem with the aim of pushing down long-term interest rates.

Unlike quantitative easing, Operation Twist does not expand the Fed's balance sheet, yet uncertainty sent the greenback inching down.

The Fed will hold its monetary policy meeting June 19-20.

The greenback, meanwhile, was down against the pound, with GBP/USD up 0.10% and trading at 1.5684.

The U.S. currency was down against the yen, with USD/JPY trading down 0.15% at 78.99, and down against the Swiss franc, with USD/CHF trading down 0.12% at 0.9538.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.12% at 1.0230, AUD/USD down 0.03% at 1.0123 and NZD/USD up 0.09% at 0.7928.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.10% at 82.16.

In the U.S. later Tuesday, the Federal Reserve will open its two-day monetary policy meeting.

The U.S. is to publish official reports on building permits and housing starts, leading indicators of the health in the housing sector.