MercoPress. South Atlantic News Agency

Dollar gains on eve of Fed interest rate decision.

The dollar nudged higher against the euro and yen as dealers marked time on the eve of a US Federal Reserve interest rate announcement.

The single European currency fell to 1.2157 dollars in early European trading Monday, down from 1.2198 late on Friday in York. The dollar rose to 109.78 yen from 109.76 on Friday.

With no major data on the immediate horizon investors were taking a "wait and see" approach ahead of Tuesday's meeting of US monetary policymakers, said Audrey Childe-Freeman, economist at CIBC World Markets.

A 25 basis point interest rate hike, the third since June 30, lifting the federal funds rate to 1.75 percent, was seen as a done deal. But given the softish tone in recent US economic data the outlook beyond the meeting was less certain, she said.

"The dollar may trade on a marginally stronger note as we get into the meeting, with the prospect for a rate hike likely to help over the next two days but it could be a different story towards the end of the week as investors reassess the interest rate outlook for the next three to six months."

Dealers will be poring over the Fed's comments for any change in tone from previous statements.

"A change of the term calling for 'measured' rate hikes to something indicating there is not much more to go would pressure the dollar lower," predicted ABN Amro currency strategist Paul Mackel.

A quarter-point hike this week would been seen as "underlining the fact that cyclical conditions remain US dollar-positive despite obvious structural negatives," he added.

The pound meanwhile struggled as data provided further evidence of a cooling of the housing market in Britain, with one survey showing property prices held steady in August and separate data pointing to a slowdown in mortgage lending.

"Evidence that the housing market is losing momentum is currently coming thick and fast," said Howard Archer, economist at the Global Insight consultancy.

"Nevertheless, it is still difficult to be totally confident that the housing market slowdown is more than just a temporary lull in activity, although we suspect that it is." The euro was changing hands at 1.2157 dollars against 1.2198 late on Friday in New York, 133.43 yen (133.88), 0.6804 pounds (0.6803) and 1.5460 Swiss francs (1.5454). The dollar stood at 109.78 yen (109.76) and 1.2717 Swiss francs (1.2674). The pound was at 1.7864 dollars (1.7907), 196.13 yen (196.50) and 2.2720 Swiss francs (2.2698). On the London Bullion Market, the price of an ounce of gold stood at 404.35 dollars against 405.70 dollars late on Friday.