The dollar hit one-month highs against the euro and two-week peaks against the yen in advance of the Federal Reserve meeting. But market moves were modest and traders said narrow-range trading would probably prevail until after today's rate decision.

The dollar has gained more than 2 per cent against the euro and the yen in over a week, aided by Friday's strong US economic data. The euro had come under modest pressure in European trading amid uncertainty about the outcome of Italian elections, and it remained near lows even after official results showed Mr Silvio Berlusconi's centre-right bloc won an absolute majority in the Senate, Italy's upper house, as expected.

Traders said the the strength of the victory of Mr Berlusconi's coalition should have been a mild euro positive by boosting confidence about the chances of a lasting government, but pessimism about the euro's prospects outweighed any positive momentum.

In US trade last night, the euro dipped to one-month lows at 87.28 cents, but then found support there and bounced to around 87.50 cents. The dollar also traded at two-week peaks near 123.35 yen, helped by weakness in Japanese stocks during Tokyo trade, before paring some of its gains.