Investing.com - The dollar was higher against a basket of the other major currencies on Tuesday ahead of an expected interest rate hike by the Federal Reserve, while sterling hit two-month lows as the prospect of Britain triggering its exit from the European Union loomed.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.24% to 101.5 by 08.51 ET, adding to the previous sessions modest gains.
Investors were awaiting the outcome of the Fed’s two-day policy meeting on Wednesday, with a rate hike almost fully priced in by markets.
Futures traders are pricing in around a 93% chance of a hike, according to Investing.com’s Fed Rate Monitor Tool.
With a rate hike seen as a near certainty investors were awaiting fresh cues from the Fed on the expected pace of rate hikes this year.
A report on U.S. producer prices for February did little to alter expectations for a rate hike.
The Department of Labor said the producer price index rose 0.3% last month after rising 0.6% in January.
Producer prices jumped 2.2% from a year earlier, after rising 1.6% in January.
The dollar was little changed against the yen, with USD/JPY at 114.87, holding just below Friday’s seven-week highs of 115.49.
The euro was lower, with EUR/USD down 0.23% to 1.0628, pulling further away from the one-month highs hit in the previous session.
The single currency came under pressure as uncertainty over the outcome of major European elections remained high.
The euro hit one month highs on Monday following reports that some European Central Bank policymakers had suggested raising rates before the end of its stimulus program at last week’s policy meeting.
Sterling hit two-month lows against the dollar, with GBP/USD down 0.62% to 1.2141.
The drop in the pound came after parliament gave its approval to Prime Minister Theresa May’s Brexit bill, giving her the power to formally trigger article 50 of the Lisbon Treaty to launch divorce proceedings with the EU.
Sterling was also hit by Scotland’s push for a new independence referendum, which deepened political uncertainty.
The pound was lower against the euro, with EUR/GBP advancing 0.4% to 0.8753, within striking distance of Monday’s eight-week highs of 0.8786.