By Carla Mozee and William L. Watts, MarketWatch

LOS ANGELES (MarketWatch) -- The dollar fell against most major rivals Wednesday, with investors appearing to anticipate European officials will craft a deal to aid debt-troubled Cyprus, while they watched for the U.S. Federal Reserve to say it will continue its bond-buying program.

The ICE dollar index (DXY), which measures the greenback against a basket of six rival currencies, was at 82.694 in recent action, down from 82.893 in late trading Tuesday.

The WSJ dollar index , which measures the U.S. currency against a slightly wider currency basket, slipped to 73.55 from Tuesday's close at 73.70.

The euro (EURUSD) came off four-month lows against the dollar, changing hands at $1.2956 compared with $1.2898 late Tuesday after the parliament in Cyprus rejected a financial rescue plan put forward by the country's international creditors and the government.

The "stream of news from Cyprus has provided little clarity so far, but the currency markets appear to have calmed down as traders await some sort of resolution to the banking crisis," Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, told clients on Wednesday.

Cyprus' parliament turned down a plan that would have levied a tax on bank deposits to help shoulder the cost of a bailout of the island nation. The rejection left plans to shore up the country's banking sector in disarray. Read: Cyprus vote raises more doubt over euro membership.

But the ECB subsequently said it would continue to provide liquidity to Cyprus. Banks in Cyprus remain closed, while the country's finance minister said he held "constructive" talks with his Russian counterpart over possible loans, and that discussions will continue.

"With the ECB offering just enough for now and Cypriot banks in a state of suspended animation pending a deal (meaning that the ECB does not need to be put to the test), markets can get back to 'business as usual' meaning risk on," said Elsa Lignos, currency strategist at RBC Capital Markets in London.

"It remains to be seen whether Russia will be willing to provide the full amount of loans (or equity if looking to co- finance with the EU) and with what conditions," Lignos said.

Still, Cyprus is a main macro concern, said Chris Weston, chief market strategist at IG Markets. The "twists and turns in this saga continue to subtract sentiment from the euro and feed safe-haven asset appreciation," he said.

Meanwhile, the Federal Open Market Committee will wrap up its monthly policy meeting later Wednesday. Watch live coverage of the Fed decision and Bernanke's press conference.

Federal Reserve Chairman Ben Bernanke and his colleagues are widely expected to hold key interest rates steady and continue buying $85 billion a month in Treasury bonds and mortgage-backed securities. But economists said the Fed's economic forecasts might contain the only surprises.

"The main issue for us is the Fed's view on the unemployment rate, with the board having a consensus target of just over 7.7% for the full year," said Weston.

"If the board acknowledges the strength in the labor market and cuts this target, this invariably would cause strong inflows into the U.S. dollar," he said.

Still, Weston wasn't expecting such a move on Wednesday. "While we don't rule out a change here, we feel the Fed will want further evidence before cutting its forecasts to say 7%," he said.

U.S. stocks climbed ahead of the Fed's statement, due at 2 p.m. Eastern time. The S&P 500 index (SPX) rose 0.5% and the Dow Jones Industrial Average (DJI) gained 57 points at 14,513.

In other currency market action, the British pound (GBPUSD) erased an early loss to trade at $1.5158, up from $1.5108 late Tuesday.

Minutes from the Bank of England's March policy meeting showed a minority of three members called for expanding the bank's asset-buying program but also noted concerns over the potential impact of a rapid fall by the pound on the central bank's credibility.

"Further monetary stimulus might increase that risk. It might also lead to an unwarranted depreciation of sterling if it were misinterpreted as a lack of commitment to maintaining low inflation in the medium term," the minutes said.

"If the FOMC presser later today sends a dovish message from Chairman Bernanke, then the cable rally could extend and the pair could challenge the $1.5200 level as the day proceeds," said Schlossberg at BK Asset Management.

The Australian dollar (AUDUSD) traded at $1.0391, up 0.3%.

Against the Japanese yen (USDJPY), the dollar traded at 95.54 yen, up from around Yen95 late Tuesday.

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