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HONG KONG- The yen remained under pressure on Tuesday and the euro edged higher as talks between Russian and Ukrainian negotiators continued, but moves were more muted than in recent days as the market's attention turned to this week's Fed meeting.

The U.S. Federal Reserve is set to raise rates for the first time since the pandemic at its meeting which concludes Wednesday, with traders looking for indications about the pace of future rate hikes.

Markets anticipate a 25 basis point rise at this meeting, according to the CME's Fedwatch tool, but pricing has risen to indicate a 70% chance of a larger 50 basis point hike at its subsequent meeting in May, due to concerns about inflation.

"We think the statement and Chair Powell's press conference after the meeting will be influential in terms of market pricing for a 50 basis point rise in May and beyond, and that will impact the U.S. dollar intraday," said Carol Kong, an FX strategist at Commonwealth Bank of Australia (CBA).

The dollar index, which measures the greenback against six major peers was at 98.881, down 0.23% on the day mainly due to losses against the euro, but still in sight of the 99.415 touched a week ago, its highest level since May 2020.

The yen fell as low as 118.44 per dollar on Tuesday, a new five-year low, as its recent slide showed no signs of stopping.

The contrast between rising benchmark rates in the United States and low rates in Japan is becoming ever more apparent as the Fed begins to tighten, particularly with both the Fed and the Bank of Japan meeting this week.

Analysts at Bank of America raised their forecast for dollar-yen to 123 by the third quarter of this year.

The return of risk sentiment to markets, partly on the back of hints of a negotiated end to the war in Ukraine, has also taken away some of the support for the safe-haven Japanese currency.

Russian and Ukrainian delegations held a fourth round of talks on Monday but no new progress was announced. Discussions were due to resume on Tuesday, offering a boost to the euro, which has been badly bruised by the expected economic damage caused by the conflict.

The European common currency was up 0.36% to $1.0979, with analysts also pointing to falling oil prices as a factor given Europe's current reliance on Russian oil and gas.

Traders were also watching the Chinese yuan which touched a near three-month low, as a resurgence in COVID-19 cases clouds the country's economic outlook, while the deepening Ukraine crisis boosts geopolitical risks for Beijing.

The onshore yuan fell to 6.3880 per dollar, the weakest since Dec. 10, 2021, while the offshore yuan touched a near five-month low of 6.4097 per dollar.

The Australian dollar was under pressure at $0.7181, having tumbled 1.5% on Monday, hurt by a halt to the surge in commodities prices which sent it higher earlier this month.

CBA's Kong said the situation in China was also weighing on the Aussie.

Sterling was also beaten down at $1.3042, while in cryptocurrencies, bitcoin was down 2.25% at just under $39,000