Forex - Dollar index retreats as Fed minutes eyed

Investing.com - The dollar retreated from 14-year highs against a currency basket on Wednesday as investors waited minutes from the Federal Reserve’s December meeting, when it hiked interest rates for the first time in a year.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.68% to 102.54.

The index hit highs of 103.81 on Tuesday, the most since December 2002, after upbeat U.S factory data fed into expectations for a faster rate of policy tightening from the Fed this year.

The U.S. central bank is to publish the minutes of its December meeting at 14.00 ET and analysts will be examining them for any indications that officials are more upbeat on growth than the quarterly economic projections released following the meeting showed.

Analysts will also be looking for what Fed officials said about potential fiscal policy changes under the incoming Trump administration and how they may react to measures that could spur growth and inflation.

Traders were looking ahead to Friday’s U.S. nonfarm payrolls report for December for indications on solid growth in the labor market which could enable the Fed to keep pushing up interest rates.

Higher rates typically boost the dollar by making dollar assets more attractive to yield-seeking investors.

The dollar was lower against the yen, with USD/JPY down 0.39% to 117.28, off Tuesday’s three-week highs of 118.6.

Japanese government spokesman Yoshihide Suga said Wednesday that Tokyo should closely monitor the market to spot any speculative or one-sided moves in the yen, but did not comment on the currency’s current levels.

The euro gained ground, with EUR/USD climbing 0.77% to 1.0485, supported by reports showing that business activity in the euro area rose at the fastest pace in more than five years and inflation in the bloc climbed to the highest in over three years.

The single currency touched lows of 1.0341 on Tuesday, the weakest level since December 2002.

Sterling also moved higher, with GBP/USD rising 0.47% to 1.2297, recovering from a two-month low of 1.2197 struck overnight.

The pound was buoyed by data showing the U.K. construction sector enjoyed solid growth in December and another report showing that consumer credit notched up its fastest monthly increase since March 2005 in November.

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