Dollar turns positive for 2018 before Fed meeting

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NEW YORK: The US dollar surged into positive territory for 2018 on Tuesday and broke past key levels against several currencies as a divergence between growth and the interest rate outlook versus other countries spurred investors to chase the currency higher.

The dollar, traded against a basket of major currencies, rose 0.45 percent to 92.250, the highest since Jan. 11 and higher than where it started the year.

“We’re pretty much back to where we were at the beginning of the year, so a lot of the dollar weakness has been pretty much wiped out,” said Sireen Harajli, foreign exchange strategist at Mizuho in New York.

The euro, which has been knocked by weaker-than-expected economic data and growing doubts about when the European Central Bank will normalize its monetary policy, fell 0.45 percent against the greenback to $1.2023.

The dollar also pushed past key levels against the Australian dollar, the Swedish crown, Swiss franc and the British pound.

The US economy has shown signs of strength in 2018 that few other developed economies can match.

“The key US dollar driver has been the divergence between economic data in the US and the rest of the world, and US data continues to look comparatively robust,” Morgan Stanley said.

Sterling extended losses on Tuesday to below the $1.37 line for the first time in 3-1/2 months after survey data showed British manufacturing growth sliding to a 17-month low.
Markets do not expect a change in interest rates from the Federal Reserve at the conclusion of its meeting on Wednesday, though analysts will be watching for any change in language and any indications that a June hike is likely.

Investors are also focused on Friday’s employment report for April for further indications of the strength of the US economy and inflation pressures.

Geopolitical tensions, including around a US-China trade spat, have also subsided in recent weeks to support the dollar.

“There was some concerns about the potential for trade wars and the US administration’s hard line on China. That seems to have eased a little bit and given markets some sense of comfort,” said Harajli.

Traders said relatively illiquid markets because of holidays across much of Europe and parts of Asia had exacerbated moves on Tuesday.

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