FXstreet.com (London) - USD continued to go from strength-to-strength to day, as Producer Prices rose pointing to increasing inflationary pressures. Signs of inflation lead will pressure earlier rate hikes by the FED, and the Dollar was boosted today as investors took this rationale, rising across the board, and hitting 10-week highs against the troubled Euro, EUR/USD bottoming out at 1.4502.

Dollar has strengthened stealthily over the past weeks, after promising consumer spending and employment data buoyed investor sentiment in the Greenback. Regarding inflationary sentiment markets will look to CPI figures, also due tomorrow, as the second piece of the puzzle. Should these follow PPI increases, expect the Dollar rally to continue.

The FED started their policy meeting earlier today and are expected to to finish at 1830 GMT tomorrow, when investors will look closely for subtle indications on future policy and the outlook for the fragile US economy. Other signs of improving fiscal prospects have come in the way of significant M+A activity, with multi-billion dollar US aquisitions taking place in recent months.

Gold held firm and continues to do so in the early Asian trading after bouncing several days ago from lows of $1116 to currently trade at $1122.53, down $2 Dollars from the open.

Markets have shed some of their recent gains as speculators skimmed profits ahead of the FED announcement later today, while Oil was boosted jumping nearly 3% off the back of rumoured production adjustments. CAD however, usually closely correlated to oil prices, battled to keep up with a surging Dollar. USD/CAD has traded softly ahead of further cues from the larger economies, and currently trades at 1.0607/11.

As volumes sink lower and lower approaching Christmas, and investors tie-up trades and profits ahead of the New Year, markets will trade increasingly range bound, and this is likely to continue this Asian session.

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