The U.S. dollar reversed Monday's gains Tuesday as the Federal Reserve started its first meeting of 2018 with investors awaiting for interest rate cues.
The two-day meeting is the last of Janet Yellen's tenure as chair.
After six straight weekly declines, the dollar index was on track to fall about 3.4 percent for the month, which would be its biggest monthly fall since March 2016.
Traders are cautious ahead of a slate of events this week, including a Fed meeting announcement on Wednesday and a U.S. jobs report on Friday that will include data on non-farm payrolls and average hourly earnings.
After raising rates three times in 2017, the Federal Reserve expects to tighten interest rates in three more increments this year, hoping to get out in front of inflation as global economies are seeing simultaneous growth.
But investors expect the Fed will hold off until its next meeting in March to make the opening move on the rate that affects all forms of business and consumer lending, waiting to see firmer signs that inflation is beginning to pick up.
The most recent numbers show inflation remains tame, below the Fed's two-percent target despite falling unemployment, but some economists expect price pressures to mount in the first half of 2018, especially amid growing competition to find workers.
And annual measures of inflation could begin to rise in the spring after soft prices for consumer goods and services seen in 2017 drop out of the calculations.
A falling dollar, rising energy prices, possible new trade barriers and the massive corporate tax cuts approved last month also could give life to inflation after years in which it was surprisingly low.
"There won't be any surprises at this meeting," Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, said. "They'll say good bye to Janet Yellen."
Yellen, the first woman to lead the Fed, officially steps when her term as chair expires on Saturday.