Dollar in narrow range as Fed meeting looms; sterling weakens

The dollar index, which tracks the U.S. currency against a basket of major currencies, was 0.2% higher at 79.735.

The dollar was down 0.4% against the Japanese yen to 114.92 yen, after markets in Tokyo were closed for a holiday Monday.

The euro was slightly down, at $1.3859.

The dollar extended its gains against the pound sterling, which fell 0.7% to $1.9931 after shares of the U.K.'s Northern Rock (UK:NRK: news, chart, profile) dropped sharply for the second straight session. The mortgage lender said last week it needed Bank of England for emergency funding in the face of difficulties raising financing.

Investors' main focus remained on Tuesday's Federal Open Market Committee meeting, at which the central bank is expected to trim its federal funds target rate by a quarter-point. See Economic Preview.

Investors and analysts will be closely parsing the Fed's accompanying statement for clues about future interest rate moves.

"The statement might also shed more light on the Fed's reluctance to cut its key policy rate, and its reliance on an array of other measures, including moral suasion, to mitigate the dislocations in credit and money markets," wrote Sherry Cooper, chief economist at BMO Capital Markets.

Manufacturing activity in the New York area slowed a bit in September, according to data released early Monday by the New York Federal Reserve. Its Empire State Manufacturing index fell to 14.7 points in September from 25.1 in August, and below the 18.0 expected by economists. See Economic Report.

Stocks opened lower after the data and seesawed in early trading, adding to pressure on the U.S. currency. See Market Snapshot.

Former Federal Reserve Chairman Alan Greenspan contributed to the pressure when he told news program "60 Minutes" on Sunday that the outlook for the U.S. economy is "pretty gloomy," and said the long-term impact on the economy from the current financial market turmoil is not clear.

Greenspan said on another news program Monday morning that he tried to raise mortgage rates to head off a housing bubble, but the effort came to naught because of "global forces" that had the effect of keeping long-term interest rates low