Source AP ©

Euro drifts lower against U.S. dollar

The euro drifted lower against the U.S. dollar on Tuesday ahead of a key meeting of the U.S. Federal Reserve.

The 13-nation euro fell to US$1.3794 in morning European trading, just slightly less than the US$$1.3798 it bought in New York late Monday.

The British pound dropped to US$2.0269 from US$2.0300. The dollar headed higher against the Japanese currency, rising to purchase 118.76 yen from 118.43 yen.

Markets were looking ahead to the Fed meeting for hints as to whether interest rates may be lowered amid fears of a slowdown.

Worries about the U.S. lending climate have badgered markets since last week, and investors are concerned that weakness in the U.S. subprime mortgage sector will spread to global credit markets.

The Fed has kept its benchmark interest rate steady at 5.25 percent for the past year, even as the Bank of England and the European Central Bank have increased their rates.

Higher interest rates, a weapon against inflation, can support a currency by offering investors better returns on investments denominated in that currency.