The U.S. dollar drifted lower against its major rivals in European deals on Tuesday, as investors await the Federal Reserve's monetary policy meeting beginning today, for clues regarding a shift in rate hike stance.

The Federal Reserve is due to release its latest statement on monetary policy and its economic forecasts on Wednesday, followed by chairwoman's Janet Yellen's press conference.

Markets are expecting that the US Federal Reserve may remove the term 'considerable time'; given that they have removed the other key term in 'significant underutilization of labour maket resources' in the last FOMC meeting.

Meanwhile, the sharp plunge in oil prices to around $60 a barrel and risks from slow overseas growth are expected to complicate efforts of Fed in its forecast to economic growth.

The housing starts data for November and manufacturing PMI for December are due today, that may give further hints about the economy.

The Commerce Department is due to release its housing starts data for November at 8:30 am ET. Economists expect housing starts to come in at a seasonally adjusted annual rate of 1.038 million units, while building permits are expected at 1.060 million units.

Markit is scheduled to release the flash estimate of its U.S. manufacturing purchasing managers' index for December at 9:45 am ET. The consensus estimates call for an improvement in the index to 55.5 from 54.7 in November.

The greenback declined to 115.59 against the yen, its lowest since November 17. At yesterday's close, the pair was worth 117.80. Continuation of the greenback's downtrend may lead it to a support around the 114.6 zone.

The manufacturing sector in Japan continued to expand at an accelerated pace in December, the latest flash purchasing managers' index from Markit Economics and the Japan Materials Management Association revealed.

The Markit/JMMA manufacturing purchasing managers' index, or PMI, edged up to 52.1 in December from 52 in November.

The greenback fell to 1.2569 against the euro, near a 4-week low, from an early high of 1.2433. If the greenback's extends slide, 1.267 is seen as its next support level.

Eurozone private sector growth accelerated more than expected to a 2-month high in December, flash survey data from Markit Economics showed.

The composite output index advanced to 51.7 in December, the highest reading in two months, from 51.1 in November. Economists had forecast the PMI to come in at 51.5.

The greenback dropped to 0.9552 against the Swiss franc for the first time since November 20. On the downside, the greenback-franc pair may test support around the 0.945 region. The pair ended yesterday's trading at 0.9654.

Easing from an early high of 1.5610 against the pound at 4:30 am ET, the greenback slipped to nearly a 3-week low of 1.5785. Continuation of the greenback's downtrend is likely to see it challenging support around the 1.59 area.

U.K. inflation slowed more than expected in November, data from the Office for National Statistics showed.

Inflation slowed to 1 percent in November from 1.3 percent in October. Economists had forecast prices to rise by 1.2 percent.

The greenback fell to a 5-day low of 0.7848 against the NZ dollar, after advancing to a multi-day high of 0.7720 in early deals. Against the aussie, the greenback hit a 4-day low of 0.8273. Next likely support for the greenback lies around 0.79 against the kiwi and 0.838 against the aussie.

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