US dollar little changed after hitting 13-month low as Fed begins meeting

[NEW YORK] The US dollar edged up on Tuesday after falling to a 13-month low against a basket of major currencies as investors gained hope US President Donald Trump could push through his expansionary fiscal agenda but remained wary of the short-term US economic outlook.

The euro rose to its highest since August 2015 and was just a hair below a 2-1/2-year high, boosted by a stronger-than-expected German business survey. The Ifo business sentiment index reached a record high, showing that Germans were "euphoric" about the country's business climate.

The US dollar regained some ground against the euro and other major currencies as US Treasury yields rose along with US equities in afternoon North American trading, reducing demand for safe-haven bonds.

The US dollar further rebounded as the US Senate passed a motion to proceed on a repeal of the 2010 Affordable Care Act, which Mr Trump and Republicans have vowed to undo.

Uncertainty about the healthcare vote, as well as an investigation into Russia's meddling in the 2016 US election and its possible collusion with the Trump campaign, has cast a cloud over the Republican president's pledges to cut taxes and ramp up spending, analysts said, weakening expectations for US growth and inflation.

The market had also started to get a "little complacent" ahead of an announcement from the Federal Reserve following the conclusion of a two-day policy meeting on Wednesday, said Scotia Capital currency strategist Shaun Osborne.

"With the Fed on the horizon it seemed prudent of the markets to cover some of the dollar shorts," he said.

The Fed began its meeting Tuesday with no change to interest rates expected. However, investors will be looking for the US central bank's outlook on trimming its US$4.5 trillion in bond holdings, said Eric Nelson, currency strategist at Wells Fargo.

The US dollar index had fallen to its lowest since June 2016, to 93.638. It has fallen nearly 4 per cent over the last month and more than 8 per cent this year. It was last up 0.15 per cent at 94.095.

The euro had risen more than half a per cent to US$1.1711, matching its high from Aug 24, 2015, and just below its highest since January 2015. That represented an important technical level, Mr Nelson said.

The euro was last up 0.1 per cent at US$1.1647. The US dollar rose 0.7 per cent against the Japanese yen to 111.86 yen.

REUTERS