U.S. Dollar Firms on Rate Hike Expectations

The U.S. Dollar rose against a basket of currencies on Tuesday, rebounding against the Euro and hitting a one-week high against the Japanese Yen, as investors prepared for the U.S. Federal Reserve interest rate decision on Wednesday. The Fed is widely expected to raise its benchmark interest rate 25-basis points from 1.50 percent to 1.75 percent.

June U.S. Dollar Index futures settled at 89.954, up 0.622 or +0.70%.

Investors will also be looking for clues from the central bank on its outlook for the U.S. economy and how many interest rate increases we may see to prevent the economy from overheating.

The new quarterly forecasts from Fed officials will be at the forefront as well as the press conference from newly appointed Fed Chief Jerome Powell.

The dollar is likely to remain in a wait-and-see mode, but late session chart action suggests it may be poised to breakout to the upside, ahead of the Federal Open Market Committee with traders eagerly waiting to take a position based on the dot plot forecasts and the tone of Powell’s press conference.

USD/JPY

The Dollar/Yen rebounded from Monday’s losses following comments from Masayoshi Amamiya, one of the two new deputy governors at the Bank of Japan. Amamiya told reporters earlier on Tuesday there is a need to stick with an easy monetary policy to support the economy.

The USD/JPY settled at 106.530, up 0.444 or +0.42%.

EUR/USD

The Euro declined against the dollar on Tuesday after a solid performance the previous session. The catalyst behind the sell-off was a sharp drop in confidence among German investors in March according to a ZEW research institute survey.

The EUR/USD settled at 1.2241, down 0.0094 or -0.76%.

On Monday, the Euro rallied sharply higher in reaction to a Reuters report that European Central Bank officials were shifting their debate from bond purchases to the expected path of interest rates, reigniting bets that the ECB may raise rates sooner than previously thought.

GBP/USD

The British Pound retreated on Tuesday after posting stellar gains the previous session. The Sterling fell against the U.S. Dollar after weaker-than-forecast British inflation figures supported the view the Bank of England will likely leave interest rates unchanged for the foreseeable future.

The GBP/USD settled at 1.3997, down 0.0027 or -0.19%.

On Monday, the Forex pair rallied to its highest level in more than a month as Britain and European Union officials appeared to reach a broad agreement on a post-Brexit transition period and the Irish border.