By Gina Lee

Investing.com – The dollar was down on Tuesday morning in Asia, with the Fed widely expected to further tighten its monetary policy as it begins its two-day meeting.

It was at 103.23, down 0.2% by 2:04 PM ET (6:04 GMT) On Monday, it was just above a 20 year high against a basket currency.

With Japanese markets closing for the holiday, the pair fell 0.05% to 130.07.

It rose 0.99%, to 0.7116. As it made its earlier policy decision, the ECB raised its 0.35% to 0.7112. This pair increased by 0.09%, to 0.6437.

While the pair was stable at 6.6083, Chinese markets were also closed because of a holiday. This pair rose 0.18% to 1.2513.

On Wednesday, the Fed will announce its decision and expect to raise rates 50 basis points. This is the largest hike in rates since 2000. It is expected that the central bank will announce plans for reducing its balance sheet of $9 trillion.

The possibility of a 75-basis points point increase or of a quicker pace of reduction of the balance sheet is being considered by some investors.

“A lot of traders are anticipating that the Fed’s not going to back down from this hawkish stance and you could still see some hawkish surprises, and that’s why the dollar is likely to hold on to its gains heading into the meeting,” OANDA senior analyst Edward Moya told Reuters.

On Thursday, the policy committee will make its decision.

The European Union has begun preparing sanctions against Russia for oil sales as a response to Russia’s attack on Ukraine on February 24th. Germany, Russia’s biggest energy customer, has changed its stance that could deprive Russia of a large revenue stream within days.

In Asia Pacific, ongoing concerns about China’s latest COVID-19 outbreak and its impact on the country’s economic impact helped cap the dollar’s losses. On Monday, Shanghai saw 58 cases in areas that were not under lockdown. Meanwhile, Beijing began its mass testing.

The Japanese yen was unable to hold the currency against the dollar at its 20-year highs. This is despite the Bank of Japan’s renewed commitment to keeping interest rates low. It also pledged to continue buying unlimited quantities of bonds every day in order to maintain its yield goal.