The U.S. dollar trimmed a loss versus the Japanese yen and was little changed against the euro as traders awaited the outcome of the U.S. Federal Reserve's policy meeting later Wednesday. The dollar also showed little reaction to news that the trade deficit for June widened to $27 billion from a decade low of $26 billion in the previous month. Excluding oil, imports fell to the lowest level in 5 1/2 years. Major currency pairs remained largely confined to recent ranges. The dollar changed hands at 95.76 yen, down slightly versus the Japanese unit from 95.97 yen in North American trade late Tuesday. Activity in currency markets was dominated by profit-taking in equity markets, which caught the market short dollars, wrote strategists at Brown Brothers Harriman. The debate over the possibility that the greenback has reached a turning point after five months of decline was also providing support for the dollar, they said. The euro erased a loss to fetch $1.4159 versus the dollar, little changed from $1.4152 Tuesday. The dollar index , which tracks the greenback against a trade-weighted basket of six major currencies, was little changed at 79.18 compared with 79.27 late Tuesday. The official statement from the central bank's rate-setting Federal Open Market Committee, expected around 2:15 p.m. Eastern, will probably include a clear nod to the improved economic outlook. But few economists think the FOMC will raise interest rates or abandon the easy-money policies credited with avoiding a second depression. Many economists expect the Fed to allow its program of buying as much as $300 billion in Treasurys to expire when that amount is reached, likely sometime in September. While not equivalent to lifting interest rates, confirmation of the end of the program could be seen as a step toward a less accommodative monetary policy, and would likely be viewed as supportive for the dollar, analysts said. "We see downside risk for the dollar if the FOMC statement dampens speculation of a Fed hike in [the first quarter] next year or if the Fed surprises the market by extending its Treasury purchases, as the $300 billion commitment will be complete next month," the Brown Brothers Harriman strategists said. The British pound traded at $1.6442 versus the dollar, a loss of 0.1% on the day but off earlier lows. The euro bought 85.97 pence, up 0.2% on the day. The British currency had weakened ahead of the release of the Bank of England's quarterly inflation report. The report said inflation would be more likely to lag rather than exceed the bank's 2% annual target in a scenario in which the central bank met market expectations to begin raising its key lending rate in 2010 and completed 175 billion pounds of asset purchases under its quantitative-easing program. Fear of undershooting the target means the central bank is more likely to hold off on increasing rates, analysts said. And some economists see the report pointing the way to a potential increase in the size of the bank's asset purchases rather than any rush to begin unwinding the program, which is designed to boost the money supply, hold down market interest rates, spur spending and, ultimately, avert a deflationary spiral. Bank of England Gov. Mervyn King said the economy is likely to return to growth in coming quarters. But he noted that the recession has been deeper than had been anticipated and that crippled balance sheets in the banking sector, as well as for households and the government, could lead to a slow and "protracted" recovery. "The August inflation report was dovish, dismissing market interest-rate expectations for a first tightening in monetary policy as early as first-quarter 2010 as being too aggressive," said Tullia Bucco, an economist at UniCredit MIB in Milan. Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=jaSbn6eJZStpgGzpxvxsig%3D%3D. You can use this link on the day this article is published and the following day.

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