The US dollar hovered just above a two-year low on Wednesday, while stocks struggled, as growing worries about the US economy had investors cautious and looking to Congress and the Federal Reserve for a boost.

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The Fed is expected to strike a dovish stance at its policy review later in the day and perhaps open the door to a higher tolerance for inflation - something dollar bears think could squash real yields and sink the currency even further.

A USD 1 trillion US fiscal rescue package is also at an impasse as a Friday deadline to extend unemployment benefits looms.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent as gains in China offset small losses elsewhere. Japan's Nikkei was down 0.8 percent on a rising yen and weak start to corporate earnings season.

Against a basket of currencies the dollar wallowed just 0.3 percent above a two-year low hit a day ago. It has lost 3.7 percent in July so far and is headed for its worst month in nine years.

Gold steadied around USD 1,960 an ounce, pulling back from a USD 1,980 high on Tuesday but still having gained nearly USD 150 in eight sessions. S&P 500 futures were flat.

The Fed's forward guidance probably determines the next move and the extension of several emergency lending facilities on Tuesday fuelled anticipation of a particularly dovish tone.

"Some pockets of the market are looking for the forward guidance to be a bit bolder in a dovish direction," said Imre Speizer, currency analyst at Westpac in Auckland. "If we don't get that, you may well get a small rebound in the dollar."

The Fed publishes its interest rate decision, which is not expected to change, at 1800 GMT and Chair Jerome Powell holds a press conference half an hour later. The bond market was also in a cautious mood ahead of the meeting, having retraced a selloff on Tuesday to leave benchmark US 10-year yields at 0.5823 percent.

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Besides the Fed, the other focus is on political wrangling over the next US fiscal package, which weighed on Wall Street overnight where the S&P 500 fell 0.6 percent.

Republicans' USD 1 trillion proposal includes cutting a weekly USD 600 unemployment benefit, which expires on Friday, to USD 200 just as cracks emerge in the economic rebound.

US consumer confidence fell by more than expected this month, as COVID-19 infections flared. The Democrats are pressing for a larger spending commitment, while President Donald Trump also said he didn't like elements of the Republican plan, adding to the sense of confusion.

"This is a big deal - there's 30 million people unemployed and so much of US GDP is consumer spending," said Chris Brankin, CEO of brokerage TD Ameritrade Singapore. "Markets are hopeful that some type of extension gets done...even if it's reduced - if you just cut if off wholly you'd see significant volatility in the markets."

Elsewhere in currencies, the Australian dollar eased to USD 0.7164 after second quarter consumer prices fell by the most on record, cementing views interest rates would stay low for a long time to come.

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The euro was steady at USD 1.1723 while the yen was testing a new four-month top at 105.09 per dollar. Copper prices climbed back towards a two-year high hit two weeks ago, on hopes that global stimulus would help industrial demand.

Oil prices steadied after a surprise drop in US inventories pointed to energy demand, even as virus infections surge. Brent crude futures were last up 0.2 percent at USD 43.29 per barrel and US crude was flat at USD 41.03 a barrel.

First Published:Jul 29, 2020 8:45 AM IST