By Saumya Vaishampayan and Carla Mozee, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar rose against most rivals on Tuesday, netting a second day of gains against the Japanese yen, as the Federal Open Market Committee prepared to kick off its two-day meeting.
The U.S. dollar USDJPY +1.10% exchanged hands at 95.40 yen in recent trade, higher than ÂĄ94.56 late Monday.
The Fed’s interest-rating setting body is slated to begin meeting on Tuesday and release its policy decision on Wednesday.
Few market participants think the Fed could announce a change in its monthly asset purchases of $85 billion at this meeting, but the language used in the monetary policy statement about an eventual slowing could be important for the dollar. Congressional testimony from Fed Chairman Ben Bernanke in May, in which he said the Fed could taper those purchases in the next few meetings, led to a dollar rally. The Fed’s bond buys have been understood to weigh on the greenback.
Bernanke on Wednesday is likely to “reiterate his comments from his recent congressional testimony, including that purchases may be adjusted up or down, conditional on the incoming data and the Fed’s economic outlook,” Barclays wrote Monday.
“We remain neutral on the [dollar’s] near-term prospects in light of this uncertainty, but continue to selectively favor owning [dollar] volatility, given the sensitivity to changes in the tapering prospects,” the bank’s analysts wrote.
Another factor in the mix is the expiration of Bernanke’s second term as chairman at the end of January. President Barack Obama said in an interview with Charlie Rose that Bernanke has done an “outstanding job” as Fed chairman, but added Bernanke has “already stayed a lot longer than he wanted or he was supposed to.”
Data released Tuesday showed inflation remained benign. U.S. consumer prices rose by a seasonally adjusted 0.1% in May, compared with expectations of a 0.2% increase. But construction of new homes in the U.S. rose 6.8% last month to a seasonally adjusted annual rate of 914,000, less than economists had expected.
The dollar on Monday broke a four-day win streak for the yen, which had benefited from uncertainty about the Fed possibly slowing the pace of monthly bond purchases. The yen was also aided by the Bank of Japan’s June 11 decision not to expand its own stimulus efforts.
A Monday afternoon article in the Financial Times said Bernanke was likely to imply the Fed is close to slowing its monthly asset purchases, depending on economic figures.
The euro EURUSD +0.13% on Tuesday was slightly higher against the dollar, at $1.3387 compared with $1.3366 late Monday.
The ZEW economic-sentiment indicator in Germany rose 2.1 points to a print of 38.5 in June. Economists had expected a reading of 38.1.
The British pound GBPUSD -0.75% was lower, fetching $1.5609, compared with Monday’s level around $1.5721.
The ICE dollar index DXY +0.09% , which tracks the greenback against six rivals, rose to 80.708 from 80.619.
The WSJ Dollar Index XX:BUXX +0.40% , which uses a slightly wider comparison basket, was at 72.82, up from 72.49 on Monday.
The Australian dollar AUDUSD -0.92% traded at 94.75 U.S. cents, down from 95.63 cents late Monday.
The Reserve Bank of Australia is scheduled to meet on July 2. In the June 4 meeting, the bank held the cash rate at 2.75%, a record low, following an unexpected quarter-point cut in May aimed in part at bolstering the non-mining and energy sectors of the economy.
Interest-rate reductions can hurt a currency’s appeal among investors searching for relatively higher returns.
Given the weakness in underlying details of Australia’s national accounts and softer economic data from the country’s major trading partners since the June meeting, “we still see risks skewed toward easing,” RBC strategist Michael Turner wrote to clients Tuesday.
RBC expects the benchmark rate to be eventually cut to a low of 2.25%, including a quarter-percentage point reduction at the July 2 meeting.
Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
