LONDON (AFP) - The dollar edged higher against the euro here, drawing strength from the expected decision Tuesday by the US Federal Reserve to hike US interest rates.
The single European currency in late-day trade was at 1.2167 dollars, down from 1.2198 late Friday in New York.
Against the yen the dollar had risen to 109.92 from 109.76 on Friday.
The Federal Reserve, the US central bank, is widely expected to raise interest rates by a quarter percentage point Tuesday to take the Fed funds target rate to 1.75 percent.
Investors will be keeping a close eye on a Fed accompanying statement for indications as to whether there will be a further increase at the November meeting.
"With the FOMC (Federal Open Market Committee) meeting still one day away, the US dollar is likely to remain bid," said Margaret Browne, currency analyst at HSBC.
The market was expecting not only a quarter-point hike but also a more upbeat statement than in August, she said.
Most analysts expect to see the Fed maintain its optimistic assessment of the US economy and to further reinforce Fed chairman Alan Greenspan`s view that momentum was regaining traction.
UBS analyst Mansoor Mohiuddin said he expectd the Fed to indicate that inflationary expectations had moderated but that growth had strengthened.
"This suggests the Fed will keep its tightening bias while continuing to remind the market that future rate hikes will only occur at a measured pace," he said.
On the other hand, any hint that the Fed might take a pause from raising interest rates in November would likely unsettle the market and would be bad news for the dollar, analysts said.
Elsewhere, sterling stabilized in afternoon trade after falling earlier in the day in the wake of data showing a slowing in British mortgage lending in August -- further evidence that the housing market is cooling as higher interest rates take their toll.
The market will now be looking to the latest housing market survey by the Royal Institute of Chartered Surveyors, due out early Tuesday, for further indications on the housing market.
The main focus of the week for the pound, however, will be Wednesday`s release of the Bank of England Monetary Policy Committee`s minutes from the September meeting, when rates were left on hold at 4.75 percent.
The bank is seen as likely to raise rates just one more time this year, probably in November.
The euro was changing hands at 1.2167 dollars against 1.2198 late on Friday in New York, 133.72 yen (133.88), 0.6811 pounds (0.6803) and 1.5489 Swiss francs (1.5454).
The dollar stood at 109.92 yen (109.76) and 1.2732 Swiss francs (1.2674).
The pound was at 1.7863 dollars (1.7907), 196.38 yen (196.50) and 2.2740 Swiss francs (2.2698).
On the London Bullion Market, the price of an ounce of gold stood at 404.30 dollars against 405.70 dollars late on Friday.