Investing.com - The dollar inched higher against a basket of major currencies on Tuesday, as markets digested the possibility of a March rate hike, ahead of the Federal Reserve’s monetary policy meeting next week.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, climbed 0.05% to 101.71, after hitting a session high of 101.91.
The U.S. central bank is poised to increase interest rates at its March 14-15 meeting, after Fed Chair Janet Yellen hinted last week that should U.S. economic data come in as expected, then further monetary tightening "would likely be appropriate" this month.
According to Investing.com’s Fed rate monitor tool, nearly 90% of traders expect a rate hike in March, compared to just 81.9% of traders on Monday.
Some analysts are also looking to the Fed policy meeting for clues on the number of rate hikes in 2017. In a research note to clients, Morgan Stanley said it “thinks this [March] will be the first of three hikes in 2017 and four hikes in 2018”.
Meanwhile U.S. trade data had little impact on the greenback, after the U.S. trade deficit climbed to an almost five year high.
The trade gap widened by 9.6% to $48.5 billion in January, the highest level since March 2012, and in line with economists’ forecasts.
Elsewhere, the euro shrugged off uncertainty concerning the outcome of the French presidential election, after outgoing president Francois Hollande vowed to “do everything” in his power to stop the anti-European Union candidate Marine Le Pen from winning the election.
EUR/USD gained 0.03% to trade at $1.0586, while EUR/GBP gained 0.27% to 0.8671.
Elsewhere, GBP/USD fell to a seven-week low of $1.2170, after weaker than expected consumer spending data added to concerns that the UK economy is slowing as it prepares to trigger Article 50 (the formal step required to begin the process of exiting the EU).
The USD/CAD added 0.04% to $1.3414 while the USD/JPY recovered from losses sustained in the previous session to trade at 113.93.