- Investors expect rate hike from the Fed this week
- ECB's Draghi sees vigorous pickup in inflation
- Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
The dollar was largely steady against its major peers on Tuesday as investors looked to policy clues from the U.S. Federal Reserve, which is widely expected to hike rates this week, as financial markets fret over a heated Sino-U.S. trade dispute.
The euro kept some of its gains made overnight when it hit a 3-1/2-month high after European Central Bank chief Mario Draghi expressed confidence in eurozone inflation and wages growth.
Markets around the world have been sideswiped in the past few months as the intensifying trade row between China and the United States stoked uncertainty about the outlook for global growth and broader monetary policy for some developed and emerging market economies.
On Monday, the United States and China imposed a new round of tariffs on each other's goods with no sign either side is willing to back down.
The Fed begins its two-day policy meeting later on Tuesday at which it is expected to raise interest rates for the eight time since late 2015. Markets are also betting on another rate hike before year-end, though the outlook for 2019 is less clear.
"Despite U.S.-China trade tensions, the U.S. economy is okay. That is why the Fed can continue tightening," Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.
The dollar index .DXY , which measures the greenback against a basket of six currencies, was about 0.1 percent higher at 94.274.
Against the Japanese yen, the dollar rose about 0.1 percent to 112.91 yen JPY= . It briefly traded at 112.96 yen, its highest level since touching 113.16 yen on July 19.
The Australian dollar AUD=D4 , a proxy of China-related trades and a gauge of broad risk appetite, was flat at $0.7252 after dropping nearly half a percent the previous day.
Speculators have ramped up bets that interest rate differentials between the United States and other major economies, including Japan and Australia, will increase.
For example, net long positions for the dollar have grown to nearly $25 billion according to CFTC data NETUSDALL= .
The euro EUR= traded little changed at $1.1749 after surging to $1.1815 the previous day, its highest level since June 14, before giving up most of its gains during U.S. trade overnight.
The common currency rose after ECB's Draghi on Monday described an acceleration in underlying inflation in the euro zone as "relatively vigorous" and expressed confidence that a pick-up in wage growth would continue.
But Draghi reaffirmed the ECB's pledge to keep rates at their current, rock-bottom level "through the summer" of next year, effectively rebuffing calls from some policymakers to tighten policy more quickly.
"The sentiment of euro area corporates is not as buoyant as before, so I think it's not the timing for the ECB to be more hawkish," Yamamoto said.
"The rise of the euro was temporary yesterday because there is an anchor for the interest rate expectation for the euro area."
