Investing.com – The dollar traded flat against a basket of global currencies on Monday, failing to capitalise from a slump in sterling but expectations that the Federal Reserve will increase its benchmark rate on Wednesday limited downside momentum.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.03% to 97.21.
The dollar bounced off lows, as investors looked ahead to the prospect of an U.S. interest rate hike on Wednesday stemming the recent fall in the greenback, which has wiped out all its gains since Donald Trump was elected as U.S. president.
According to investing.com’s fed rate monitor tool 90% of traders expect the Fed to increase its benchmark rate from 0.75-1% to 1-1.25%, after its two-day meeting concludes on Wednesday.
While the interest rate hike is widely expected, investors are cautious about a potential shift in tone on the prospect of the U.S. economy from Fed chair Janet Yellen, who is slated to field questions in a press conference after the Federal Reserve’s interest rate decision.
The expected rate hike comes against a backdrop of U.S. economic jitters, as the most recent U.S. job numbers failed to matched expectations while a slump in energy prices threatens to curtail the pace of inflation.
Meanwhile in the UK, the pound struggled to hold onto a slender lead against the dollar, dropping as low as $1.2681, as political uncertainty continued to dominate moves in sterling amid investor concerns about the upcoming Brexit negotiations in the wake of the surprise UK election result.
EUR/USD traded flat at $1.1201, up 0.05% while EUR/GBP gained 0.89% to 0.8856, after the first round voting on Sunday put Emmanuel Macron’s La REM on course to secure an overwhelming parliamentary majority, which could give Macron a relatively free rein to push through his economic and social plans.
USD/JPY rose 0.55% to Y109.73, after data showed inflation held steady in May.
USD/CAD fell by 0.40% to $1.3415, as the oil-linked Canadian dollar advanced following a rebound in oil prices.