Expectations grew that the Fed may hint at more policy action and new economic projections for the assessment of its economic outlook.
The Fed will give a statement at 1800 GMT, after its policy meeting. It would be the first policy meeting since Fed Chair Jerome Powell announced a more accommodative stance on inflation. It is also the last Fed meeting before the Nov. 3 U.S. presidential elections.
Investors will be looking for details about how the changed approach will affect monetary policy. Markets are keen to see particularly whether Fed spells out where it sees inflation headed and what exactly that means for interest rates.
The economic projections are expected to be somewhat improved from the last round of forecasts in June. But, the Fed Chair will probably stick to his message that the road to recovery will be long and uncertain.
Expectations from the Fed have increased amid a stalemate in talks for fiscal relief and a sharp pullback in heavyweight technology stocks earlier this month.
Investors will also be watching for U.S. retail sales data for August, due at 1230 GMT and expected to show a robust increase.
UK inflation dropped to its lowest rate in almost five years last month. A large reduction in prices for eating out under a government subsidy scheme led the inflation.
Elsewhere, the WTO ruled that the United States breached global trade rules with the multibillion-dollar tariffs it imposed during its trade war with China.START TRADING
Forex – More policy action is expected by investors
Given the scale of the policy change involved, investors tend to stay on their toes prior to any Fed announcement. Trading could, however, easily and quickly shift soon after the statement.
The dollar index was at 92.879 at 1132 GMT, down 0.3% on the day.
The Canadian dollar gained ground against its broadly weaker U.S. counterpart on Tuesday. The loonie was trading 0.2% higher at 1.3150 to the greenback or 76.05 U.S. cents.
The yen rose overnight and extended gains to hit a nearly seven-week high of 104.995 to the U.S. dollar around 1108 GMT, as investors sought safer assets.
The euro was up 0.2% at $1.18635.
Sterling reversed earlier losses and rose 0.6% to $1.2995. This would be its biggest daily rise in 2-1/2 weeks before a meeting of the Bank of England on Thursday. Policymakers may strike a downbeat assessment for the struggling economy.
Oil prices rose for a second day in a row. U.S. crude oil hit one-week highs, up 2.1% at $39.09 a barrel at 1134 GMT.
Gold prices rose, up 0.4% at $1962.66 an ounce
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money