Investing.com - The dollar trimmed back gains against a basket of the other major currencies on Tuesday ahead of an expected interest rate hike by the Federal Reserve, while sterling eased slightly after falling to two-month lows earlier.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at almost unchanged at 101.33 by 12.00 ET, after rising as high as 101.54 earlier.
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 increase 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 slid lower against the yen, with USD/JPY down 0.24% to 114.59, off Friday’s seven-week highs of 115.49.
The euro was slightly lower, with EUR/USD at 1.0643, having retreated 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 touched 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 remained on the back foot, with GBP/USD down 0.45% at 1.2161, after falling to lows of 1.2109 earlier, the weakest level since January 17.
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 also lower against the euro, with EUR/GBP up 0.37% to 0.8751, within striking distance of Monday’s eight-week highs of 0.8786.