Dollar gains ground as focus shifts to Fed meeting

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The U.S. dollar regained firmer footing in the second half of Tuesday’s session, as market participants turned their focus to the Federal Reserve’s policy meeting, which is expected to culminate in an interest-rate hike Wednesday.

What are currencies doing?

The ICE U.S. Dollar Index












DXY, +0.22%










which measures the buck against six rivals, was 0.3% higher at 93.827. The WSJ Dollar Index












BUXX, +0.28%










a broader gauge of the greenback, rose 0.3% to 87.27.

The euro












EURUSD, -0.3055%










gave back previous gains and fell to $1.1747 from $1.1785 late Monday in New York.

Read: Investors should treat the euro rally with caution, analysts say

The dollar strengthened against the Japanese yen












USDJPY, +0.29%










, which is a haven asset in volatile times and a risk barometer. Still, the dollar-yen pair came off from earlier highs and last bought ¥110.35, compared with ¥110.02 late Monday in New York.

Also see: How this week could reignite the dollar-yen rally

The South Korean won












USDKRW, +0.48%










 — in focus given the meeting between President Donald Trump and North Korean leader Kim Jong Un — also weakened against the dollar, though it had been stronger during the Asian trading day. The buck was buying 1,081.55 won, up from 1,076.86 won late Monday in New York. The won-yen pair












KRWJPY, -0.1957%










 saw Korea’s currency strengthen slightly, fetching ¥0.1020, up 0.2%.

The British pound












GBPUSD, -0.0448%










 fell to $1.3372, from $1.3380 Monday. Sterling tumbled Monday after data showed a sharp decline in U.K. factory output, something that could cast doubt on future interest-rate increases from the Bank of England. Meanwhile, investors are watching a parliamentary vote that could shape the process of the U.K.’s exit from the European Union.

The greenback continued its winning streak against Canada’s currency












USDCAD, +0.3005%










, which has been under pressure on trade tensions over the North American Free Trade Agreement. One dollar bought C$1.3018, versus C$1.2980 late Monday.

Don’t miss: Trade spat means more pain in story for Canadian dollar: analyst

Also see: Why emerging-market investors are swooning over Colombia’s peso

What’s driving the market?

The dollar bounced higher in the afternoon after spending much of Tuesday trading rather subdued and unimpressed with the day’s main events: the reading on U.S. consumer price inflation for May, and the denuclearization deal signed by Trump and Kim in Singapore.

Inflation rose at its fastest pace in six years in May, expanding 0.2% on the month and 2.8% on the year. Core inflation, which strips out more volatile components, also rose 0.2%.

Fed funds futures show the likelihood of a 25-basis-point rate hike at Wednesday’s Federal Reserve meeting at 91.3%. Following the Fed, the European Central Bank is due to meet on Thursday, followed by the Bank of Japan on Friday.

Meanwhile, the first meeting between a sitting U.S. president and a North Korean leader resulted in a document pledging to work toward a “complete denuclearization of the Korean peninsula.” However, the pact was criticized for offering few specifics about the process Pyongyang would follow in giving up its nuclear program and the measures for verifying this. Still, Trump predicted the countries would have a “terrific relationship.”

Concern over international trade calmed somewhat after being stirred by clashes between Trump and some of his closest allies at the weekend’s Group of Seven summit.

Read: A pumped-up U.S. economy does have some downsides — here are two of them.

Don’t miss: Investors brace for week packed with Fed, ECB and North Korean drama

What are strategists saying?

“The increase in headline inflation to a six-year high of 2.8% in May is partly due to the rally in energy prices, but it also reflects another solid monthly gain in core CPI, which will keep the Fed on course to raise interest rates tomorrow,” said Michael Pearce, senior U.S. economist at Capital Economics.

“The dollar has been a notable gainer overnight, strengthening against its peers as the historic meeting went ahead. Trump had been managing expectations by setting the bar low moving toward the summit and the fact that the tone was upbeat (and a vast improvement on the G-7) lifted the dollar to a four-session high in the Asian session,” noted Jasper Lawler, head of research at London Capital Group.

What data were in focus?

Besides consumer price index data, the federal budget deficit for May read $146.8 billion, wider than the consensus, but narrower that the prior reading.



Source : MTV