Currency markets have been whipsawed over recent weeks as trader tried to come to terms with range of issues from Brexit to slowing global growth and the outlook for major central banks.

Slackening global demand is one of the factors that is expected to see the Bank of Japan cut its inflation forecasts and stick to its ultra-easy policy at its rate review later in the day.

The yen, widely considered a safe-haven during times of market turmoil or economic stress, pushed up slightly against the dollar at 109.4, adding to a 0.5 percent gain in the last session.

"Nervousness around global growth and trade tensions is certainly a factor driving the markets right now," said Michael McCarthy, chief markets strategist at CMC Markets.

"Markets have also seen a spectacular run since late December..so the recent correction in equities can also be due to positioning."

On Monday, the International Monetary Fund (IMF) cut its 2019 and 2020 global growth forecasts, citing a bigger-than-expected slowdown in China and the Eurozone, and said failure to resolve trade tensions could further destabilise a slowing global economy.

Growth in China last year was the slowest since 1990 and investors are hoping for a breakthrough in U.S.-Sino trade talks, with the tariff dispute between the world's largest economies already rippling through financial markets and global demand.

A report by the Financial Times that the United States had rejected China's offer for preparatory trade talks dampened risk sentiment overnight.

The Aussie dollar, often considered a barometer for global risk appetite, was marginally down at $0.7120.

The dollar index <.DXY> was also a touch lower at 96.30. Traders in interest rate futures are wagering that the Federal Reserve will stand pat on rates in 2019 in the face of growth risks both at home and globally.

The dollar rally last year was mainly driven by the Fed's four rate hikes, so traders expect a pause in the tightening cycle to cap the U.S. currency.

The euro was steady at $1.1362, while sterling edged up to $1.2961, having gaining 0.5 percent in the previous session. Data on Tuesday showed that Britain's labour market remained robust despite an economic slowdown ahead of Brexit. Average weekly earnings, including bonuses, rose by 3.4 percent on the year, the biggest rise since mid-2008.

Sterling is sitting close to its highs last seen in mid-November in a sign traders expect Britain to avoid a chaotic exit from the European Union.

Since Prime Minister Theresa May’s divorce deal with the EU was rejected by lawmakers last week in the biggest defeat in modern British history, lawmakers have been trying to plot a course out of the crisis, yet no option has the majority support of parliament.

"The market is now completely discounting the prospect of a hard Brexit, though the political risk still remains in play and volatility is sure to ratchet higher if no clear path is visible to the market," said Kathy Lien, managing director of currency strategy at BK Asset Management,

The New Zealand dollar gained 0.2 percent in early Asian trade to $0.6764 after data showed that inflation edged higher in the fourth quarter and reducing the possibility of an interest rate cut.

(For a graphic on world forex rates in 2019, click here http://tmsnrt.rs/2egbfVh)

(Reporting by Vatsal Srivastava; Editing by Shri Navaratnam)

By Vatsal Srivastava