FX round-up: Dollar strengthens before Fed's rate decision

The dollar strengthened against other major currencies on Monday as investors looked ahead to the Federal Reserve’s interest rate decision.

The dollar rose 0.04% versus the pound, edged up 0.01% versus the euro and climbed 0.02% against the yen in afternoon trade.

The Fed is expected to keep interest rates unchanged at Wednesday’s policy meeting but the market will be looking for clues on the timing of the next rate hike. At least one interest rate increase before the end of the year is the consensus forecast following recent strong economic data.

FXTM Research Analyst Lukman Otunuga said: “Although rates may be left unchanged, the statement could provide additional clues on when the Fed may take action in 2016. If hawks make an appearance, then the already bullish Dollar could lurch higher across the global currency markets.”

Elsewhere, the yen weakened before the Bank of Japan’s policy announcement on Friday. Many economists predict the BoJ will loosen monetary policy to boost Japan’s economy.

“It was thought that the BoJ was exploring the idea of helicopter money, something that was firmly denied in an interview with Governor Haruhiko Kuroda last week, which took the edge off the yen weakness from the last couple of weeks,” said Craig Erlam, senior market analyst at Oanda.

“This was partially undone by the revelation that the interview was conducted in June, although it’s unlikely that his view has changed significantly since then.”

The pound retreated after the Confederation of British Industry’s latest quarterly survey showed optimism among UK manufacturers has fallen sharply in the wake of the UK’s vote to leave the European Union on 24 June. The business confidence index dropped to -47 from -5 in April, exceeding the -15 reading expected by analysts.