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Dollar steadies after data backs view of gradual Fed rate hikes

Key Points
  • Dollar index little changed after in-line U.S. CPI data
  • U.S.-North Korea summit broadly seen as non-event for markets
Dan Kitwood | Getty Images

The dollar rose against a basket of currencies on Tuesday, amid broad expectations the Federal Reserve will announce rate hikes on Wednesday following its quarterly meeting.

Federal Reserve Chairman Jerome Powell is also reportedly considering holding a press conference after every policy meeting rather than every other, according to the Wall Street Journal. This could have wide-reaching effects as the market has come to expect major policy changes only at meetings followed by news conferences.

"We've evolved to a place where the market only thinks we'll move if there's a press conference," Atlanta Fed President Raphael Bostic said in an interview with the Wall Street Journal. This is "a sign that what we're doing right now isn't working," he said.

Three of the world's top central banks - the Federal Reserve, the European Central Bank and the Bank of Japan - are each meeting this week. The market was relatively quiet on Tuesday morning as investors waited for guidance from the banks.

"Were eagerly awaiting the Fed, the ECB and the BOJ, in that order. People are reluctant to do a whole lot ahead of that," said Gregory Anderson, global head of FX strategy at BMO Capital Markets in New York.

The Federal Reserve holds a two-day meeting starting on June 12, and it is widely expected to raise interest rates for the second time this year. The focus is on whether the central bank will hint at raising rates a total of four times in 2018.

The European Central Bank meets on June 14, when it could signal intentions to start unwinding its massive bond purchasing program. The Bank of Japan will meet from June 14 through June 15, but will not offer an immediate report following the meeting, instead publishing a summary of opinions on June 25.

The dollar earlier gave up gains made in Asian trade as markets saw few concrete measures emerging from the U.S.-North Korea summit. Against a basket of rivals, the dollar was up 0.22 percent at 93.79 after bouncing 0.3 percent to 93.89 in early trade, its highest since June 5.

U.S. President Donald Trump said he had formed a "very special bond" with North Korean leader Kim Jong Un at a meeting, but the Korean stock and currency markets were broadly flat and U.S. debt, which tends to benefit from geopolitical uncertainty, held steady.

"This is more of a side show and headline grabber rather than yielding anything substantive with markets more worried about the developments at the G7 summit," said Viraj Patel, a currency strategist at ING in London, referring to trade tensions among the participants.

Against the Japanese yen, the dollar was trading 0.25 percent higher at 110.30 yen, after hitting 110.49 earlier in the day, its highest in nearly three weeks and above a 200-day moving average.

Against the dollar, the euro fell 0.25 percent to $1.1753.

JPMorgan: The Fed has been quite clear about its path for rates this year