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GBP/USD Surge Above $1.40 Weighs on Dollar Ahead of FOMC

3/20/2018, 1:47:55 PMMarket Analysis
GBP/USD Surge Above $1.40 Weighs on Dollar Ahead of FOMC

The dollar fell against a basket of major currencies weighed by a sharp rise in sterling as the UK and EU reportedly reached an agreement on a post-Brexit transition period and the Irish Border.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.38% to 89.46.

Ahead of the Federal Reserve Open Market Committee (FOMC) meeting, the dollar struggled to advance despite expectations FOMC members on Wednesday will vote to raise rates for the first time this year and could add a fourth rate hike projection to the current projections three rate hikes expected this year amid a hawkish tweak in the FOMC language in January.

The FOMC statement noted that "market based measures of inflation compensation have increased in recent months but remain low," a tweak from December's language which simply said that the measures "remain low."

According to investing.com's fed rate monitor more than 93% of traders expect the fed to hike rates on Wednesday.

The fall in dollar comes as GBP/USD rose 0.65% to $1.4032 after the UK and EU were said to have agreed on a large part of a post-Brexit transition deal, which raised optimism over a smoother exit for the UK from EU.

Also weighing on the greenback was a rise in EUR/USD rose 0.35% to $1.2333 amid a Reuters report suggesting that a few dovish rate-setting European Central Bank members have warmed to the idea of tighter monetary policy.

USD/JPY fell 0.16% to Y105.84, while USD/CAD fell 0.05% to C$1.3089, the latter fell as the loonie strengthened following signs of progress on NAFTA negotiations