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US dollar edges higher ahead of FOMC meetings

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US dollar edges higher ahead of FOMC meetings

The US dollar advanced against a basket of its major competitors amid a highly active news wire, culminating Wednesday when the Federal Reserve wraps up its two-day FOMC policy meetings.

The US dollar index advanced 0.15 percent to 79.31 after falling more than half a percent the previous week. The greenback has been under tremendous pressure after the budget impasse suspended government activity for 16 days. The furlough is believed to have cost the United States economy $24 billion. The economic impact of the shutdown has increased demand for other global safe havens.

Gains for the greenback were actualized despite the release of mixed US data. Industrial production beat estimates, rising 0.6 percent in September and at an annual rate of 2.3 percent. However, a decline in pending home sales kept the enthusiasm in check. Contracts for previously owned homes fell 5.6 percent in September and at an annual rate of 1.2 percent. September was the first time in 29 months pending home sales weren’t higher than year-ago levels.

The dollar’s rebound could be short-lived as market participants prepare for prolonged federal stimulus. Economists expect the Federal Reserve to withhold bond tapering until March 2014, according to an October survey by Bloomberg.

In Europe, the common currency dropped more than 0.1 percent against the greenback to fall off the 1.38 handle. The EURUSD traded on a loss of 16 pips in North America. The British pound fell 30 pips to settle below the 1.6150 handle. The GBPUSD pair reached a high of 1.6208 in the European session. The greenback also found support against the Japanese safe haven, advancing 0.15 percent to 97.70.

Currency traders will remain mostly on the sidelines ahead of the FOMC policy meetings. Market participants will have the opportunity to gauge the extent of Fed’s commitment to QE3 Wednesday when the central bank releases its second-last monetary policy statement of 2013.

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