By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar edged up against the euro on Tuesday as Germany’s parliament approved plans for a massive spending surge on Tuesday and as the Federal Reserve kicked off its March policy meeting that could offer clues to the path of U.S. interest rates.

The euro was 0.2% lower at $1.0915, after hitting $1.0954 earlier in the session, its highest since October 10.

“(It’s) a classic ‘buy the rumour, sell the fact’ sort of reaction really, which isn’t too surprising,” said Michael Brown, senior research strategist at Pepperstone.

“The buck has been ticking higher in recent trade anyway though, against most peers, which is helping the move to the downside along a little,” he said.

The German parliament’s approval of plans for a massive spending surge throws off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending for a new era of European collective defence.

The euro rose earlier in the session after data showed German investor morale improved more than expected in March.

Broadly, currency market moves were largely muted as potential catalysts, including the German vote, developments on a possible Russia-Ukraine peace deal and policy announcements from major central banks in coming days, kept traders cautious.

While analysts expect the Fed to hold its monetary policy stance amid persistent inflation concerns, investors will be looking to new economic projections from Fed officials for evidence of how U.S. central bankers view the likely impact of Trump administration policies.

“The SEP (Summary of Economic Projections) will be the most interesting aspect, I imagine, with near-term inflation expectations likely nudged higher, and growth projections marked down a touch, though conviction behind those forecasts is going to be lacking, amid the ever-changing macro outlook,” Brown said.

The greenback hit a two-week high against the yen as investors await the outcome of Wednesday’s policy meeting from the Bank of Japan. The dollar was last up 0.3% at 149.65 yen.

BOJ policymakers are expected to discuss just how much of a risk the escalating U.S. trade war poses to Japan’s economy.

“We would expect this adjustment in the pricing of the terminal rate to be maintained following the BoJ meeting,” said Lee Hardman, senior currency analyst at MUFG, referring to market expectations that rose from around 0.90% at the end of 2024 to close to 1.20%.

The market will also be watching developments on a possible Russia-Ukraine peace deal, which would be positive for the single currency. The Kremlin said on Tuesday that President Vladimir Putin and President Donald Trump would hold a phone call between 1300 and 1500 GMT.

Elsewhere, the Australian dollar slipped 0.5% to $0.6352 after rising to its highest in about a month on Monday.

Bitcoin, the world’s largest cryptocurrency by market cap, was down 2.5% at $81,878.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Stefano Rebaudo; Editing by Bernadette Baum)

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