Euro firms vs. dollar as Fed meeting looms

Frankfurt (Dec 16)  The euro edged higher against the dollar on Monday after two days of losses, lifted by euro zone data showing business activity picked up, while uncertainty over the Federal Reserve's economic stimulus program kept investors wary of the greenback.

The Fed goes into a two-day meeting starting on Tuesday and market participants have started to price in the possibility that it will opt for a small reduction in its bond purchases.

The euro rose to just shy of $1.38 after a report on Monday showed German manufacturing activity and the Flash Eurozone Composite Purchasing Managers' Index (PMI) both beat forecasts in December. 

The single currency had earlier dipped to around $1.3745 after separate data showed French private-sector activity unexpectedly slowed.

It trimmed some of its gains after ECB President Mario Draghi, speaking before the European Parliament on Monday, highlighted the euro zone economy's downside risk, affirming that interest rates in the region will stay low, if not lower, for longer. The euro was last up 0.1 percent at $1.3756.

The dollar index,  meanwhile, fell 0.1 percent to 80.100, while the greenback fell 0.3 percent versus the yen to 102.97. Dollar weakness was consistent with lower U.S. Treasury bond yields on Monday.

The euro was 0.2 percent lower at 141.70 yen, off a five-year high of 142.82 yen hit last week.