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Dollar Struggles to Hold Gains as FOMC Gets Underway

11/1/2017, 11:36:10 AMMarket Analysis
Dollar Struggles to Hold Gains as FOMC Gets Underway

The dollar traded modestly higher against a basket of major currencies buoyed by a pair of economic reports on manufacturing growth and consumer confidence that topped expectations, pointing to underlying strength in the U.S. economy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.06% to 94.44.

Investors outlook on the U.S. economy remained bullish as consumer confidence rose to its highest level since 2008 while economic activity in the Chicago area jumped to a six-and-a-half year high in October.

The Conference Board’s consumer confidence gauge rose to 125.9 in October from 119.8 in September, beating economists’ forecast for a reading of 121.

Consumer sentiment is a leading indicator of consumer spending, which plays a major role in overall economic activity.

The Chicago Purchasing Managers' Index (PMI) jumped to 66.2, above the September reading of 65.2. That topped expectations for a reading of 61. As a leading indicator of the U.S. economy, the Chicago PMI helps economists measure business activity and new orders.

The duo of reports come as the Federal Open Market Committee two-day meeting got underway on Tuesday, with an interest rate decision slated for Wednesday.

The dollar has struggled to add to recent gains as investors awaited further clues on monetary policy from the Fed and President Donald Trump’s choice of candidate to head the Fed in February.

A surge in the pound, meanwhile, capped upside in the greenback amid growing expectations that the Bank of England will hike interest rates for the first time in more than a decade on Thursday.

GBP/USD added 0.55% to $1.3280, while USD/JPY rose 0.46% to Y113.70

EUR/USD rose 0.04% to $1.1655, while EUR/GBP fell 0.48% to £0.8779 as data showed Eurozone inflation for October undershot expectations.

USD/CAD rose 0.48% to C$1.2896, as the loonie came under pressure after data showed the Canadian economy unexpectedly slowed in August