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Investing.com – The U.S. dollar edged lower Tuesday, amid caution ahead of the start of the two-day Federal Reserve policy meeting, while the Chinese yuan strengthened after Beijing pledged to step up policy support. 

At 03:20 ET (07:20 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 100.985. 

Dollar slips ahead of start of Fed meeting

The dollar has slipped slightly after weak data released Monday played into the theory that the will have limited headroom to raise interest rates any further after Wednesday’s widely expected hike.

A majority of economists polled by Reuters now expect Wednesday’s increase to mark the last increase of the central bank’s current tightening cycle.

That said, the dollar’s losses are minimal with traders wary of taking too strong positions given remains above the Fed’s medium-term target.

“The reason why we warn against pursuing a full ‘risk-on’ rally in Rest of World (RoW) currencies is that the European economy looks weak and tomorrow’s FOMC meeting will probably see the Fed’s foot remaining firmly on the monetary brakes,” said analysts at ING, in a note.

Yuan surges as Beijing promises support 

fell 0.6% to 7.1447 after pledges of support for the faltering Chinese economy from the closely watched Politburo meeting – the Communist Party’s top decision-making body.

Beijing promised ‘counter-cyclical’ measures to support the economy, and although specific details were lacking, these promises followed a series of recent measures, such as the easing of restrictions in the mortgage sector and the encouragement to buy cars and electronics.

“None of these seem to be a game-changer so far, but the market optimists are hoping that this new directive from the Politburo will be turned into powerful stimulus at the State Council level,” ING added. 

The yuan also received help from buying by China’s state banks, according to reports.

Euro edges higher; German Ifo seen weakening

rose 0.2% to 1.1083, rebounding after slumping to a two-week low of 1.1059 earlier in the session after Monday’s weak data for July.

The widely watched is due later in the session and is expected to show a weakening in confidence in the eurozone’s most important economy.

That said, the is still set to increase interest rates by a further 25 basis points when it meets on Thursday.

Elsewhere, rose 0.2% to 1.2858, rose 0.1% to 141.54, ahead of a meeting later in the week, rose 0.4% to 0.6764, helped by the positive tone emanating from China given the Aussie dollar often acts as a yuan proxy.