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Dollar nears 3-week highs ahead of Fed minutes

8/17/2017, 9:48:55 AMMarket Analysis
Dollar nears 3-week highs ahead of Fed minutes

The dollar traded near three-week highs against a basket of global currencies on Wednesday, after recent economic data pointing to a strengthening U.S. economy lifted expectations of a third rate hike later this year.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.23% to 93.98.

The dollar continued its positive start to week, as solid retail sales data on Tuesday overshadowed a slump in U.S. housing data amid growing expectations the Fed will increase interest rates for a third time later this year.

Housing starts dropped 4.8% to a seasonally adjusted annual rate of 1.16 million units, the Commerce Department said on Wednesday.

The unexpected dip in housing starts, however, didn’t deter investor expectations of a rate hike later this year. According to investing.com’s fed rate monitor tool, nearly 50% of traders expect the Fed to hike rates in December, compared to just 37% last week.

Renewed optimism for a third rate hike comes ahead of the minutes from the Federal Reserve July meeting due later in the session.

At its July policy meeting, the fed kept its benchmark rate unchanged, citing concerns over the slowdown in inflation but said it expects to begin tapering its massive $4.5tn balance sheet “relatively soon”.

In the wake of a rebound in the greenback, both the euro and sterling struggled to pare losses.

GBP/USD fell 0.18% to $1.2866, despite data showing UK unemployment fell to its lowest since 1975.

EUR/USD lost 0.34% to $1.1694, on the back of preliminary Eurozone gross domestic product data that failed to lift sentiment on the single currency.

USD/CAD lost 0.37% to C$1.2710.