The dollar's powerful rally shows no signs of slowing, no matter what action the Federal Reserve takes at its policy-setting meeting today.
Even a hawkish Fed statement - signalling that the central bank is moving into a more aggressive tightening phase which could unnerve Wall Street - is unlikely to stall the dollar's rise, currency analysts said.
"I do not expect the overall trend to change. The dollar is strong and even an interest rate hike is not likely to dent the dollar for long," said Mr Tim Fox, currency analyst at Standard Chartered in New York.
The Federal Reserve's Federal Open Market Committee (FOMC) is virtually certain to raise its key federal funds rate by one quarter of a percentage point to 5.75 per cent today. And the European Central Bank (ECB) may lift its key financing rate tomorrow.
But analysts do not expect the euro to jump against the dollar, no matter what rate actions are taken this week.
"Europe's economy may be growing but America's economy is still growing quickly and with all those political problems they have over there (in Europe), my money is going to stay on the dollar," one trader at a New York-based bank said.
After a good run ahead of the FOMC's decision, dealers were taking some profits, helping push the dollar down 0.35 per cent against the euro and off 0.16 per cent against the Swiss franc from Monday's closing levels. The dollar traded up nearly half a per cent against the yen.
Only a real surprise, like a half percentage point rate rise from the Fed, would inflict serious damage on the dollar, analysts said.
"If the Fed were to go half a point and the stock market were to unravel, that would probably be the best thing for the euro," said Mr David Gilmore, partner at FX Analytics.
However, a European rate increase tomorrow would not spell permanent trouble for the dollar. "In the unlikely event the Fed were to hike by 25 basis points and the ECB by 50 basis points, the euro would be bolstered for about 10 seconds given the overall negative sentiment (for that currency)," Mr Gilmore said.
In fact, while higher interest rates often attract more capital and thereby lift a currency, analysts argued that in this case a rate rise could choke off Europe's economic recovery.
"The pace of decline (for the euro) would only accelerate if the market were to think the ECB is following the Fed," FleetMarkets analyst Mr Paul Podolsky said.
