The U.S. dollar rose against major currencies on Monday as investors squared up positions a day ahead of this week's Federal Reserve monetary policy announcement. As a result, the dollar rose 0.4% to 1.3190 while the British pound fell around 0.5% to 1.5830. The greenback experience similar behavior against the Japanese yen and closed at 85.95.
Traders have started to focus more on fundamentals such as economic growth and short-term interest rates. That shift, just getting underway, could take the shine off the soaring USD in the coming months. A stronger currency is important to the U.S. because it entices foreign investors to Treasury debt that finances the nation's record budget deficit. The downside is that it may restrain profit growth at companies with international sales by making U.S. exports more expensive.
Looking ahead today, all eyes are focused on the U.S. Federal Funds Rate statement scheduled for 18:15 GMT. The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has remained since December 2008. The Fed Statement is expected to provide an assessment of the current economic condition in the world's largest economy and more importantly provide a speculative economic outlook.