The dollar dipped against the euro and yen on Wednesday as traders awaited a US rates decision by the Federal Reserve.
The US central bank is expected to hold interest rates steady, but flag future cuts by dropping language suggesting further hikes.
If the Fed tweaks that language, it would be dovish, but wouldn't necessarily portend a cut in March, said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
Traders will focus on whether Fed Chairman Jerome Powell pushes back against the likelihood of a March rate cut when he speaks after the Fed statement is released.
"If he's not forceful enough … there could be some near-term dollar downside as potentially more gets priced into March," said Rai.
Solid US economic data has led traders to cut bets of a March easing to 57%, from 89% a month ago, according to the CME Group's Fed Watch Tool.
The dollar index was last down 0.42% on the day at 102.97. It is on track for a 1.58% gain this month.
Investors are also focused on Friday's US jobs report for January, which is expected to show that employers added 180,000 jobs during the month.
The ADP National Employment Report showed on Wednesday that private payrolls increased by 107,000 jobs last month, less than economists' expectations of 145,000 jobs.
The dollar fell 0.71% to 146.61 yen. The Japanese currency has weakened due to the wide gap between U.S. and Japanese interest rates.
The greenback is on track for a 4.1% monthly gain against the yen, the largest since February last year, as weak wage data and cooling inflation leave room for the Bank of Japan to take its time raising rates.
Bank of Japan policymakers discussed in January the likelihood of a near-term exit from negative interest rates and scenarios for phasing out the bank's massive stimulus program, a summary of opinions at the meeting showed on Wednesday.
The summary highlights a growing view within the board that conditions were falling in place to soon pull short-term interest rates out of negative territory, which would be Japan's first interest rate hike since 2007.
The euro gained 0.28% to $1.08740.
German inflation eased slightly more than expected in January to 3.1%, preliminary data from the federal statistics office showed on Wednesday, helped by a drop in energy prices.
Sterling rose 0.31% to $1.27420 before the Bank of England's policy announcement on Thursday, where rates are also set to be unchanged.
In cryptocurrencies, bitcoin fell 1.52% to $42,889.
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