By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) -- The dollar gained ground on the euro and the Japanese yen as investors looked ahead to a meeting of Federal Reserve policy makers that’s expected to strike a more upbeat outlook on the U.S. economy.
The ICE dollar index DXY +0.34% , which measures the greenback against a basket of six currencies, traded at 79.970, up from 79.869 in late North American trading on Monday.
The euro EURUSD -0.48% erased early gains to trade at $1.3114, down from $1.3153 in late trading Monday. The British pound GBPUSD +0.01% traded at $1.5660 versus $1.5636.
The dollar held its ground despite a rise in overall risk appetite that boosted Asian and European equities and boosted U.S. stock- index futures. The dollar often loses ground as risk appetite rises, robbing the currency of safe-haven appeal.
The dollar, instead, could benefit from an upbeat economic assessment from the Fed’s rate-setting Federal Open Market Committee, or FOMC. Such a view would underline growing expectations that the central bank won’t look to pursue further monetary stimulus, which typically undercuts a currency. Read Fed preview.
“If the statement from the FOMC acknowledges the recent strength in the U.S. economy, it would suggest that Fed officials are less likely to consider any additional accommodative policy moves and as such could push the dollar higher across the board,” said Boris Schlossberg, director of currency research at GFT.
ZEW no help to euro
The euro received no benefit from a stronger-than-expected jump in the March ZEW indicator of German investor expectations. The index jumped to its highest level since June 2010, while the index measuring current conditions declined. Read about the March ZEW.
The dollar USDJPY +0.64% reversed an early loss versus its Japanese counterpart to rise to 82.70 yen from ÂĄ82.26 in late North American trading on Tuesday.
“In short, if both the U.S. economic data and monetary-policy surprise to the upside, [the dollar/yen pair] could mount a run towards the ¥83.00 figure, setting yet another fresh yearly high as the day progresses,” Schlossberg said.
The dollar initially weakened versus the yen after the Bank of Japan unanimously decided to keep its key overnight call rate at 0% to 0.1%.
“Overseas economies still have not emerged from a deceleration phase on the whole, but some improvement has recently been observed in the U.S. economy and the sluggish European economy has stopped deteriorating,” the central bank said alongside the decision.
Japan is expected to gradually emerge from current flat growth to return to a path of moderate recovery, the bank said.
It will increase the amount of loans available through its growth-supporting facility by 2 trillion yen ($24.35 billion), bringing the size of the program to 5.5 trillion yen.
The yen has fallen sharply against the dollar this year, after the Bank of Japan announced more asset buying and an inflation target.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
