The U.S. dollar held near a 10-week low against a basket of currencies on Wednesday, ahead of a statement from the Federal Reserve which is expected to reaffirm the central bank's focus on supporting growth.
In his State of the Union address, U.S. President Barack Obama proposed a freeze on domestic spending over the next five years, a move which was largely expected by markets and which Obama said would help reduce the national deficit.
In Asia, Japan's Nikkei average <.N225> fell 0.5 percent in early trade, giving back some of the gains made in the previous day's 1 percent rally, though other Asian markets ticked up slightly.
The MSCI index of Asian stocks outside Japan <.MIAJ00000PUS> rose 0.3 percent. Since the start of the year ,it has underperformed the MSCI world index <.MIWD00000PUS>, which has risen almost 2 percent.
Emerging Asian markets rose powerfully in 2010, but since then some investors have taken profit, and some pulled money out of economies they fear are the most vulnerable to the harmful effects of inflation, a growing global concern.
Worries over monetary tightening will persist in the long term, weighing especially on shares of producers dependent on raw materials as their prices are still near all-time highs, said Masayuki Otani, chief market analyst at Securities Japan Inc.
The perception that the U.S. Federal Reserve will maintain a much easier policy than the European Central Bank, which is worried about inflation, has helped boost the euro to near a two-month high.
At $1.367, the euro hovered just below Tuesday's two-month high of more than $1.37, which it achieved partly on the strength of Asian buying of the euro zone's debut European Financial Stability Facility bonds.
A pledge by the Fed which concludes a two-day policy meeting on Wednesday, to continue its $600 billion bond-buying plan could further help the euro versus the dollar, analysts said. A statement will be released at around 1915 GMT on Wednesday.
Shares in LG Electronics <066570.KS>, the world's No. 2 TV brand and No. 3 mobile phone maker, fell around 4 percent ahead of its fourth-quarter result statement, in which it is expected to report a sharp loss.
U.S. crude oil futures were up 15 cents at $86.32 per barrel, ending six days of consecutive losses during which prices fell by almost 6 percent. Those losses were driven by expectations of large U.S. oil inventories, and concerns among investors and policymakers that high commodities prices are fuelling inflation, which in turn may slow economic growth.
Gold was little changed at $1,333.90 per ounce. It hit a three-month low of $1,322.70 on Tuesday, knocked by falling investor demand as an improving economic outlook lessens gold's appeal as an asset which gains in value while other financial instruments appear at risk.