US Dollar Climbs Ahead of Federal Reserve Decision on Interest Rates

The US dollar gained strength against the euro and other major counterparts on Tuesday, as the greenback recovered from its losses on Friday. High anticipation for an interest rate hike from the Federal Open Market Committee tomorrow cleared the way for the US dollar to move higher at a time when other major currencies were held down by monetary and geopolitical forces.

The Federal Open Market Committee will end a meeting that is set to last two days tomorrow, after which it will release its update for the US monetary policy. Following a steam of hawkish comments from Federal Reserve officials, including Federal Reserve Chairwoman Janet Yellen, investors are predicting that interest rates will most likely be raised.

Fed fund futures prices, which reflect investors’ views on the probability of changes in interest rates, shows a 95.2% chance of a 0.25% hike in interest rates, according to the CME Group FedWatch tool. The probability, which nears certainty, took the dollar closer to the level it was at before the losses it suffered on Friday.

The release of a new reading for the producer price index from the US Bureau of Labor Statistics lent more support to the greenback, as the reading came better than expected. The producer price index rose 0.3% in February to exceed expectations of a 0.1% increase, according to the reading that was published earlier today.

Major counterparts of the US dollar struggled against the currency in recent trading sessions. The European Central Bank kept its monetary policy unchanged last week, while reiterating that it is still willing to increase the duration or the size of its quantitative easing program, which weakened the euro.

Meanwhile in the United Kingdom, the British pound was weighed down by concerns towards Brexit ahead of the end of March, the time when Theresa May’s government plans to trigger Article 50. The British government won parliamentary approval for its Brexit bill on Monday, which allows Theresa May to initiate withdrawal talks with the European Union.

EUR/USD traded at 1.0636 as of 14:55 GMT on Tuesday, from 1.0627 at 13:20 GMT, the pair’s weakest level since March 10. EUR/USD started the day at 1.0652. GBP/USD was at 1.2144, after touching 1.2112 at 08:10 GMT, a level last seen on January 17.

If you have any questions, comments or opinions regarding the US Dollar,
feel free to post them using the commentary form below.

Leave a Reply

Your email address will not be published. Required fields are marked *