Investing.com – The US dollar rose on Tuesday ahead of the Federal Reserve’s final policy meeting of the year, while stronger-than-expected gains helped the pound keep pace.
At 05:40 ET (10:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 106,740, hovering around a three-week high.
Dollar strong in Fed meeting
The dollar has maintained strength in the final policy meeting of the year, even as the US central bank is widely expected to cut rates when the meeting ends on Wednesday, down 25 basis points to a target range of 4.25%-4.50% .
Traders believe Fed policymakers should be relatively cautious about future rate cuts after Wednesday’s cut, especially after data released Tuesday showed activity in the services sector rose to a three-year high.
Due later in the session, the US is also expected to post strong growth in November, giving the Fed room to ease the expected number of rate cuts in 2025 when it announces its new projections.
“We think a wait-and-see approach could dominate today and encourage further consolidation of the dollar’s latest gains,” ING analysts said in a note.
“Ultimately, unless the Federal Reserve signals a smoother path than the market implies (and we don’t think so), a 2-year USD OIS rate of around 4.0% remains the key counterseasonal factor keeping the dollar from staging a meaningful correction to feed. in the generally mild month of December.”
Sterling holds firm after payrolls data
In Europe, trading was largely flat at 1.2680, with the pound holding firm against the dominant dollar, after data showed wages in Britain rose more than expected in the three months to October.
excluding bonuses, were 5.2% higher in the three months to the end of October than a year earlier, above the forecast of 5.0%.
The next meeting convenes on Thursday and interest rates are widely expected to remain unchanged, with a cautious approach to easing monetary policy continuing as inflation concerns remain.
“There are still indications that the labor market is cooling – for example there are fewer vacancies than before the corona crisis – but today’s figures clearly provide a reason for the hawks to become louder in the MPC,” ING added.
fell 0.2% to 1.0486 after survey data showed German business morale deteriorated more than expected in December.
The Ifo Institute said rates fell to 84.7 in December from a slightly downwardly revised 85.6 the month before, weaker than the forecast of 85.6.
“The weakness in the German economy has become chronic,” Ifo President Clemens Fuest said.
Yuan has no takers
In Asia, yields rose 0.1% to 7.2925, remaining near a two-year high.
Data on Monday showed China’s growth slowing sharply in November, pointing to persistent weaknesses in consumer spending.
fell 0.2% to 153.78 as traders waited for the upcoming policy meeting, following a Reuters report that the central bank was likely to leave rates unchanged this week, contrary to earlier expectations of a rate hike.
