NEW YORK (CNNfn) - Bonds drifted flat in glacial trading Tuesday as investors found little reason to take firm positions while the future of U.S. interest rates remains in doubt. Meanwhile, the dollar recoiled from both the euro and the yen.
Shortly before 9 a.m. ET, the bellwether 30-year Treasury bond was unchanged in price at 88-15/32, leaving the yield at 6.09 percent.
Traders said the majority of market participants already had adjusted their positions and were simply waiting for the Federal Reserve's rate-arbitrating Open Market Committee (FOMC) to conclude its two-day policy meeting Wednesday afternoon.
The FOMC meeting has been an increasing focus for financial markets for weeks, with bonds in particular suffering dramatic losses as investors banked on the likelihood of at least one rate hike. The Fed is widely expected to raise the key funds rate by 25 basis points, or a quarter percentage point, to 5 percent.
Analysts say bonds already have suffered enough to withstand a 25 basis-point hike, but warn that bonds could sell off again if the rate increase turns out sharper than expected, or if the FOMC keeps its bias toward raising rates again in the future.
"I don't believe that the market is ready for serial rate increases," said Phil Dow, market strategist at Dain Rauscher Weffels. "We'll just have to wait and see what is said, but my suspicion is, right on the heels of this meeting . . . it's probably going to be a tug of war."
Despite investors' trepidation, some economists said multiple rate hikes this year were not only possible but even likely.
"I think there's a very good chance we could see the Federal funds rate rise to at least 5.25 percent by year's end," said John Lonski, senior economist at Moody's Investor Service. "If not up to 5.5 percent, which would be a complete reversal of late 1998's three-staged reduction."
Meanwhile, those traders left with the urge to dip back into the bond market were looking toward the mid-morning release of new home sales data for May and consumer confidence figures for June. Economists expect the home sales statistic to fall to an annual rate of 949,000 from last month's high level of 978,000. Consumer confidence, a vital indicator of the strength of the demand-driven U.S. economy, is expected to edge up to 136.4 from 135.8.
Dollar under pressure
The dollar fell under renewed pressure as speculators bought yen in anticipation that the release of a major Japanese indicator next week will confirm Japan's economic recovery.
Yen bulls are betting that Monday's quarterly tankan gauge of the Japanese business climate will show continued improvement. The survey's key large-manufacturer index crawled up to minus 47 in March from minus 49, reflecting a slow revival in Japan's otherwise grim corporate sentiments.
Ahead of the release, the dollar slipped to 120.95 yen, falling more than half a yen from its previous close of 121.50.
As in previous sessions, speculators kept one eye out for the Bank of Japan (BOJ), which has made its distaste for an overly strong yen clear through verbal statements and outright market manipulation. The BOJ has bought billions of dollars and euros alike at inflated prices over recent weeks in order to keep the yen subdued and thus support Japan's vital export sector.
The euro, meanwhile, followed the yen higher on the dollar, climbing to $1.0358 from $1.0332.
Currency traders said weakness and uncertainty in U.S. financial markets also were contributing to the dollar's malaise. Weakness on Wall Street discourages overseas traders from investing in dollar-denominated securities, which in turn weakens global demand for the greenback itself. 
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