Investing.com - The dollar rebounded against a basket of the other major currencies on Tuesday, ahead of a Federal Reserve policy meeting where it was expected to announce the first rate hike of this year.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, climbed 0.4% to 89.83 by 09:43 AM ET (13:43 GMT).
With a rate hike almost fully priced at the conclusion of the Fed’s two-day meeting on Wednesday investors will be closely watching for indications about whether market conditions can support four rate hikes this year, rather than the three it projected in December.
An upbeat assessment of the U.S. economy by newly-installed Fed Chairman Jerome Powell late last month fueled expectations that a fourth rate hike could be in store.
The dollar moved higher against the euro, with EUR/USD falling 0.49% to 1.2275.
The common currency came under pressure following a report showing that German economic sentiment deteriorated sharply this month, amid fears that a possible trade war with the U.S. could have a negative impact on the outlook for the euro area economy.
Concerns over a trade war have been mounting after U.S. President Trump imposed tariffs on U.S. steel and aluminum imports earlier this month, which are due to come into effect on Friday.
The Trump administration is also expected to unveil up to $60 billion in new tariffs on Chinese imports by Friday.
The euro had risen in the previous session after Reuters reported that European Central Bank policymakers are shifting the focus of their debates from bond purchases to the future path of interest rates.
The report revived expectations that the ECB will wind down its stimulus program later this year and start to raise interest rates around the middle of next year.
The pound was lower against the firmer dollar, with GBP/USD last down 0.2% to 1.3996, pulling away from Monday’s one-month highs of 1.4087.
Sterling weakened after official figures showing that inflation in the UK fell to its lowest level since July last month tempered expectations for a rate hike by the Bank of England in the coming months.
The pound rallied on Monday after the UK and the European Union reached an agreement on a 21-month post-Brexit transition deal.
The dollar was also higher against the yen, with USD/JPY advancing 0.33% to 106.45.