Investing.com -- The U.S. Dollar Index fell slightly on Monday, but remained near four-month highs as currency traders awaited the start of the Federal Reserve's two-day July monetary policy meeting for added clarity on the pace of the U.S. central bank's current tightening cycle.
The index traded in a tight range on Monday between 97.25 and 97.62, before closing the U.S. afternoon session at 97.28, down 0.13%. At session-highs, the index reached its highest level since March 10. Over the last month, the Dollar has surged more than 4% against its main rivals since voters in the U.K. rattled global foreign exchange markets by deciding to leave the European Union on June 24.
Currency traders appeared hesitant to take any outsized risks in Monday's session ahead of the start of the Federal Open Market Committee's (FOMC) two-day July monetary policy meeting on Tuesday morning. While the FOMC is unlikely to make any adjustments to its benchmark Federal Funds Rate, the U.S. central could provide key hints on the timing of its next interest rate hike. Since the Fed's historic rate hike last December, the Committee has responded by leaving the Fed Funds Rate steady at a level between 0.25 and 0.50% in each of its first four meetings in 2016. When the Fed approved a 25 basis point rate hike at the end of last year, the FOMC abandoned a seven-year Zero Interest Rate Policy by ratifying their first interest rate hike in nearly a decade.
A series of major economic and geopolitical developments since the FOMC last met in June, could compel the Committee to alter its long-term outlook. In early-July, minutes from the meeting showed that the participants "generally thought it was prudent," to assess the implications of the Brexit vote on global financial markets before deciding on the timing of further monetary policy tightening. After global markets quickly stabilized following an initial panic, Fed governor Daniel Tarullo said at a forum in Washington that he felt the world's financial system prepared itself "reasonably well," to handle the fallout from the Brexit decision.
The FOMC will also convene for the first time since the release of a relatively optimistic June U.S. employment report, in which the labor market added 287,000 nonfarm payrolls last month. The robust job gains could erase some negative sentiments from a disappointing report in May when the economy added only 38,000 nonfarm jobs – its lowest monthly total in six years.
Any rate hikes by the FOMC this year are viewed as bullish for the dollar as foreign investors pile into the greenback in order to capitalize on higher yields.
GBP/USD inched up by 0.12% on Monday to 1.3139. Over the weekend, a report surfaced in the Daily Mail that a raft of proposals are being drawn up in Brussels which would provide the U.K. with access to the EU's single market. As part of the deal, Britain could receive a "emergency brake" on its departure from the European bloc for a period of seven years.
Elsewhere, USD/CAD hit a 3 ½ month high at 1.3241 before falling back slightly to 1.3220.