Dollar strengthens ahead of Fed policy statement

[NEW YORK] The dollar firmed against the euro and yen on Tuesday as the Federal Reserve opened a two-day meeting expected to leave unchanged zero-level interest rates.

But the Federal Open Market Committee policy statement to be issued Wednesday could provide insight into the Fed's plan to raise its benchmark federal funds rate this year.

"Based on the uneven price action of the dollar, investors are waiting with bated breath for the FOMC statement," said Kathy Lien of BK Asset Management.

Ms Lien pointed out that the market was divided on the timing of when the Fed will lift the fed funds rate, stuck at zero since late 2008 to support the economy's crawl back from the Great Recession.

With some predicting the hike in September and others in December, "the tone of the FOMC statement will have a significant impact on rate hike expectations," she said.

The pound gained ground against the greenback, boosted by data showing the British economy's growth accelerated in the second quarter to 0.7 per cent, from 0.4 per cent in the prior quarter.

"Today's report suggests that UK growth rates are ticking towards the high end of historical business cycles, furthering speculation that the BoE (Bank of England) will be raising rates sooner than people think," said Christopher Vecchio at DailyFX.

The US government's first estimate of second-quarter growth is due Thursday. The world's largest economy contracted 0.2 per cent in the first quarter.

AFP