USD Higher on Fed Commenting on June FOMC for Rate Hike

The dollar edged higher against the euro Monday as investors wagered that the Federal Reserve might point to an interest-rate increase in June at its meeting later, amid a parade of important central-bank decisions this week.

The Fed kicks off its two-day policy meeting Tuesday, which isn’t expected to result in an increase to benchmark interest rates when it releases its policy statement Wednesday, but may offer clues about the central bank’s outlook for future monetary-policy moves.

An interest-rate increase makes the dollar more alluring to traders because it means a higher return on dollar-based deposits.

The euro  retreated to $1.1121 from $1.1163 late Friday in New York. The British pound  traded at $1.4365, compared with $1.4382 Friday.

Trading was relatively muted in the currency market, with no important economic data expected during the U.S. session. Investors’ focus remained squarely on the spate of central bank meetings expected later. In addition to the Fed, the Bank of Japan, Bank of England, Swiss National Bank , Norway’s Norges Bank and the Russian Central Bank also are expected to meet.

“The eurodollar is lacking clear direction but we do have the Fed meeting later in the week and that is likely to pull the focus back to the U.S. dollar,” said Jane Foley, senior currency strategist at Rabobank.

Oil prices turned lower Monday after rising to their highest levels of the year late last week, dampening investors’ appetite for risky assets like stocks and emerging-market currencies. The Russian ruble , Mexican peso and Brazilian real  were notably lower against the dollar.

The dollar  traded at ¥113.60, compared with ¥113.81 late Friday, as investors awaited the Bank of Japan decision on Tuesday.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza