The dollar firmed slightly on Tuesday, though most currencies held tight ranges as investors remained concerned about ongoing tensions in the Middle East and awaited an upcoming central bank decision.

The Bank of Japan concludes its two-day monetary policy meeting on Tuesday, where it is widely expected to keep interest rates steady and consider tapering bond purchases slowly starting next fiscal year.

Ahead of the outcome, the yen firmed slightly to 144.70 per dollar, reversing some of its decline from the previous session.

"Markets are now refocusing their attention on the usual economic data and events, and...the BOJ will be the next important driver of the market," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

"Attention will be on what Governor (Kazuo) Ueda says at his press conference. Markets will be particularly interested in how he categorizes the inflation trend in Japan, especially in the context of rising trade tensions." Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump failed to reach a deal on tariffs, Fuji TV reported on Tuesday.

In broader markets, the dollar extended some of its gains in a general move to avoid risk as ongoing tensions in the Middle East weighed on sentiment.

The White House said on Monday that Donald Trump left the Group of Seven summit in Canada a day early because of the situation in the Middle East, as the president had asked the national security council to stand by in the situation room.

Trump had previously urged everyone to evacuate Tehran immediately, and reiterated that Iran should sign up to the nuclear deal with the United States.

The risk-sensitive Australian dollar fell 0.27% to $0.6507, while the New Zealand dollar weakened 0.17% to $0.6049.

Against a basket of currencies, the dollar was slightly firmer at 98.23. "Developments in the Middle East over the past few days are seriously threatening regional stability," analysts at DBS said in a note.

"The long-simmering Israel-Iran conflict reaching a major stage should add to market pressures, but so far, the view is that global spillover risks are manageable."

Overall movement in currency markets, however, has been largely subdued, as investors also await a series of central bank decisions later in the week to guide market action.

The Federal Reserve's policy decision on Wednesday takes center stage. Expectations are that the central bank will keep interest rates on hold, although focus will be on any direction on the rate outlook.

"The market is pricing in two Fed rate cuts this year, but I don't expect any," said Ronald Temple, chief market strategist at Lazard.

"Investors will be closely watching the Summary of Economic Projections for signs of potential policy easing with the dot plot and macro forecasts in focus. I expect another shift in the dot plot toward fewer rate cuts."

Elsewhere, the euro fell 0.1% to $1.1545, while the pound weakened 0.09% to $1.3563.

Trump signed an agreement on Monday that formally rolls back some tariffs on imports from the UK as the two countries continue to work toward a formal trade deal. (alg)

Source: Reuters