The Fed is widely expected to announce an increase in interest rates to 4 percent from 3.75 percent at 1915 GMT and more economists see the rate climbing to 4.5 percent or even 5 percent next year as Fed officials express alarm about inflation.
Investors were looking to see if the Fed adjusts its post-policy meeting statement, either about future policy moves or discussing inflation pressures.
During its credit tightening campaign over the past 16 months, the Fed has repeatedly indicated that further "measured" increases were ahead.
"The dollar is struggling for direction. Everyone is looking for a hike and everyone is looking for the Fed to be aggressive," said Ian Gunner, head of foreign exchange research at Mellon Bank in London.
US economic data in the previous session showing surprisingly strong Midwest business activity in October and a pick-up in the Fed's preferred inflation gauge in September underscored expectations for more rate increases.
By 1200 GMT the euro traded a quarter percent stronger at $1.2017 after sliding more than one cent on Monday.
"There is a bit of squaring up going on," said Gunner.
The dollar was up 0.2 percent at 116.58 yen, holding near a 25-month high of 116.75 hit in Asian trading.
Before the Fed announcement, the Institute for Supply Management's October PMI of national manufacturing activity, due at 1500 GMT, is forecast to dip to 57.0, which would still be a robust pace of growth, from 59.4 the previous month.
Amongst major currencies, the yen has suffered the most recently despite signs of a sustained economic recovery and the Bank of Japan's steps toward scrapping its ultra-loose monetary policy, as Japanese rates are not seen rising much from zero for a while.
The euro showed little reaction to news that eurozone manufacturing expanded at its fastest pace in over a year in October.