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US Dollar Rebounds as Inflationary Pressures Increase

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US Dollar Rebounds as Inflationary Pressures Increase

The US dollar advanced against a basket of currencies Tuesday as consumer inflation rose to the highest level in more than a year, while the Federal Open Market Committee assembled in Washington for its two-day policy meetings.

The US dollar index, a gauge of the US dollar’s performance against six commonly traded peers, advanced 0.2 percent to 80.63.

US consumer prices increased 0.4 percent in May, the biggest one-month advance since February 2013, the Labor Department reported today in Washington. Economists forecast a monthly gain of 0.2 percent.

Compared to May 2013, consumer prices were up 2.1 percent. Economists forecast a year-on-year gain of 2 percent.

Core consumer prices, which strip away volatile elements such as food and energy, increased 0.3 percent in May and 2 percent annually. Both figures exceeded forecasts.

Inflation was supported by higher food and gasoline prices, as well as by the largest jump in airline fares in 15 years, official data showed.

The news wasn’t all positive on Tuesday, as the markets learned the US housing market declined further in May. The Commerce Department said housing starts declined 6.5 percent in May to just over 1 million, while building authorizations declined 6.4 percent to a seasonally adjusted annual rate of 991,000.

The Federal Open Market Committee kicked off a two-day policy meeting Tuesday. On Wednesday the central bank is expected announce a further reduction in monthly bond buying and release new estimates about economic growth, inflation and unemployment.

The official press release and monetary policy statement will be closely monitored for clues about when the Federal Reserve could begin lifting its benchmark lending rate. The markets are concerned the Fed could begin raising interest rates sooner than expected, a move that would help the dollar but create a sharp pull back for the stock markets.

The euro declined against the dollar amid mixed German investor sentiment. Germany’s economic sentiment index, courtesy of ZEW, declined from 33.1 to 29.8 in June, well below forecasts that called for a gain. The assessment of the current climate rose sharply, with the current situation index climbing 5.6 points to 67.7.

The EURUSD declined 0.21 percent to 1.3544. Initial support is likely found at 1.3530 and resistance at 1.3598.

The US dollar rebounded against the Japanese yen ahead of the Bank of Japan meeting minutes. The USDJPY advanced 0.35 percent to 102.19. Initial support is likely found at 101.67. The pair’s advance will be challenged by the 102.28 resistance.

The USDCAD advanced 0.13 percent to 1.0857 as a lack of Canadian economic data kept price movement light. The pair faces initial support at 1.0825 and resistance at 1.0875.

Statistics Canada will release wholesale sales data Wednesday.

On Friday StatsCan will report on retail sales and consumer prices. Consumer inflation rose to a two-year high in April, surpassing the Bank of Canada’s 2 percent target.

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