By Dion Rabouin
NEW YORK (Reuters) - The dollar edged up against a basket of major currencies on Tuesday in light trading as investors made limited moves ahead of the conclusion of policy meetings at the Bank of Japan and U.S. Federal Reserve.
Investors see little chance the Fed will raise U.S. short-term interest rates and expectations are also low that the BOJ will be able to weaken the yen meaningfully when both banks announce policy prescriptions on Wednesday. However, traders remained cautious on the outcome of the meetings.
"To a large extent I think the market is just paring back its expectations," said Richard Cochinos, head of European G10 FX strategy at Citigroup in London.
"A week and a half ago consensus was dollar/yen higher on BOJ inaction. Now we're seeing a flattening of the risk profile as we go into the central bank meetings and traders are not trying to be too aggressive on one side or the other."
The dollar index rose 0.15 percent <.DXY> to 95.995, hovering just below the 96.108 mark touched on Friday that was the highest since Sept. 1. The dollar has fallen against the six major currencies that make up its basket in three of the past four sessions, but had its largest one-day percentage gain since late July on Friday.
The dollar got its biggest boost on Tuesday from selling of the British pound <GBP=>, which was last down 0.4 percent to $1.2975 after earlier hitting its lowest against the greenback since Aug. 16.
The head of Germany's Bundesbank warned on Monday that banks based in Britain could lose "passporting" access to EU markets after Brexit, adding to worries about the political and economic risks from Britain's pending exit from the European Union.
The yen rose 0.1 percent against the dollar to trade at 101.81 yen <JPY=>, having earlier touched a one-week high at 101.55 yen. The Japanese currency has risen almost 20 percent versus the dollar over the past 12 months despite the Japanese central bank's best efforts to weaken it.
“The BOJ has been disappointing expectations for more stimulus at the margin for the last few meetings,” said David Waddell, chief executive and chief investment officer at Waddell & Associates, Inc. in Memphis. “So the guess is that they will continue on the path they’ve been on, which is somewhat disappointing relative to stimulus."
(Reporting by Dion Rabouin; Additional reporting by Jemimia Kelly in London; Editing by Dan Grebler and Andrew Hay)