Dollar edges higher ahead of crucial Fed meeting

The U.S. dollar edged higher in early European trade Monday, retaining last week’s strength at the start of a week that includes several central bank meetings, most importantly by the Federal Reserve, as well as a slew of important economic data releases.

At 03:20 ET (08:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 106.445. The index gained around 1% last week.

Federal Reserve meets this week
The U.S. dollar has been on the front foot of late, helped by signs of U.S. economic strength, even after a prolonged period of interest rate hikes by the Federal Reserve.

U.S. consumer spending surged in September, while the U.S. economy grew at its fastest pace in nearly two years in the third quarter.

Fed policymakers meet this week, with the central bank expected to keep rates on hold when the decision is announced on Wednesday,

However, traders are apprehensive that these strong numbers will mean that they signal higher-for-longer rates as they continue to move fret about overheated inflation.

Yen gets reprieve ahead of BOJ meeting
USD/JPY fell 0.1% to 149.50, with the yen getting a slight reprieve after the pair rose to a one-year high of 150.78 last week.

The focus was squarely on the conclusion of a BOJ meeting on Tuesday, where the central bank is expected to potentially announce further changes to its yield curve control policy, as it grapples with high inflation and a severely weakened yen.

Recent data showed a growing resurgence in Japanese consumer inflation, which could push the BOJ into indicating plans to scale back its ultra-loose policy.

Euro slips after German, Spanish inflation data
EUR/USD fell 0.1% to 1.0554, with the single currency retreating after data showed inflation falling in the eurozone, just a few days after the European Central Bank ended the longest streak of interest rate rises in its 25-year history last week, leaving its main policy rate at 4%.

Data released early Monday showed that consumer prices rose 3.1% in October on an annual basis in the state of North Rhine Westphalia, Germany’s most populous state, a drop from 4.2% the prior month.

Additionally, Spanish CPI rose 0.3% on the month in October, below the 0.6% expected, and climbed 3.5% on an annual basis, below the expected 3.8%.

BOE seen on hold
GBP/USD fell 0.2% to 1.2094, with the Bank of England also holding a policy meeting later in the week.

The central bank is widely expected to keep interest rates on hold despite growing worries about a recession, with its inflation rate at 6.7% in September, the highest among the world’s major economies.

Elsewhere, AUD/USD rose 0.3% to 0.6352, NZD/USD rose 0.1% to 0.5820, and USD/CNY edged higher to 7.3185, with markets waiting for key Chinese purchasing managers index data due on Tuesday.