The dollar has begun to lose a little of its gloss as markets worry that there are few signs yet of an economic turnaround.

The Federal Reserve, which began a two-day meeting yesterday, is expected to announce this evening whether or not it is cutting interest rates for the sixth time in succession.

According to Mr Oliver Mangan, economist at AIB, there is increasing speculation that the Fed will cut rates by a further half percentage point. That would imply that the central bank is still concerned about the economy and that the market is being too optimistic in assuming a turnaround in the autumn.

"There has to be a lag and the Fed has said it's about nine months before the impact of an interest rate cut passes through but the market is nevertheless getting a little anxious about the lack of progress so far," Mr Mangan said.

He added that the statement from the Federal Open Market Committee, which will also be released today, will be very closely read by the markets.

The market had also been concerned about US consumer confidence but figures released yesterday afternoon showed it to be a little stronger than expected. As a result, the dollar regained some ground against the euro, with the single currency falling to $0.8600 from an earlier high of $0.8651.

The dollar may come under further pressure if the Fed opts for a quarter point cut, according to Mr Kit Juckes, chief currency strategist at RBS Financial Markets. He predicted that the dollar could fall to $0.88 against the euro in coming days.

JP Morgan Chase also began talking up the euro yesterday. The Fed's expected interest-rate cut may propel the euro to its third quarterly gain since the currency began trading in January 1999, a report stated.

"A case is building for a rally in the euro," and the Fed's decision is likely to be "the right trigger on timing" said Mr Jim McCormick, a foreign-exchange strategist at the company. The euro also gained ground against the dollar on speculation that slowing inflation in Europe will allow the European Central Bank to trim interest rates in coming weeks to boost economic growth. Reports yesterday showed inflation slowing in Germany, the largest economy in the euro zone.