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 Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 100.985.

The dollar has slipped slightly after weak U.S. business activity data released Monday played into the theory that the Federal Reserve 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.

USD/CNY 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.

EUR/USD 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 eurozone business activity data for July.

The widely watched German Ifo business climate index is due later in the session and is expected to show a weakening in confidence in the eurozone's most important economy.

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

Source : Investing.com