Dollar slips vs. euro ahead of Fed meeting

The dollar ceded ground to the euro Monday, a day before the US central bank meets to weigh whether growth is strong enough to merit cutting back its stimulus program.

At 2200 GMT, the euro rose to $1.3761 from $1.3742 late Friday.

The yen meanwhile gains some ground on both: the dollar fell to 103.02 yen from 103.21, while the euro slipped to 141.77 yen from 141.88.

The euro got a small boost from the Markit Economics eurozone composite purchasing managers index for December, which showed a slight gain, though also an uneven recovery country by country.

The dollar meanwhile was not helped significantly by a strong November US industrial output report which showed a 1.1 percent gain for the month.

The report was strong enough to turn bonds around, pushing US yields slightly higher.

In the balance is the Federal Reserve's decision on tapering the stimulus at the end of its two-day policy meeting. Better economic data favors at least a small taper, though very weak inflation gives the policymakers reason to hold off, economists say.

"Over the past week or so, the implied probability of 'tapering' by the Fed has increased. The US budget deal and better retail sales for November were some of the catalysts for a change in sentiment towards tapering happening at the December (Fed) meeting," said analysts at Nomura in a research note.

Around 37 percent of polled clients expected the move this month, slightly more than those forecasting the next meeting in January, Nomura said.

The dollar's weakness, though, is perhaps because "tapering is no longer a surprise."

"It has been priced with a very high probability for one of the next three meetings, and it may not matter greatly if the tapering starts in December, or in January or March.

"Importantly, the notion of tapering is no longer causing a significant volatility shock."

The British pound was barely changed at $1.6299, and the dollar slipped to 0.8868 Swiss franc from 0.8895.