Dollar edges higher after US inflation data as traders await Fed meet

NEW YORK: The dollar edged higher to a one-month high against a basket of currencies on Tuesday, aided by data showing inflation speeding up, and as traders awaited the Federal Reserve's two-day policy meeting for hints of plans to start tapering its bond purchases.

Data on Tuesday showed US retail sales fell more than expected in May, with spending rotating back to services from goods as vaccinations allow Americans to shake off COVID-19 restrictions.

But robust demand is outpacing supply, stoking inflation, with producer price index for final demand increased 0.8% last month after rising 0.6% in April.

"The US dollar kept firm as another hot reading on inflation overshadowed a chilly consumer," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

So far Fed officials, led by Chair Jerome Powell, have said rising inflationary pressures are transitory and ultra-easy monetary settings will stay in place for some time.

However, recent economic data has raised concerns that price pressure could force an earlier stimulus withdrawal.

"The buck could struggle if the Fed sticks to its low rates for longer outlook. However, any material change in the outlook for interest rates that pencils in a sooner rate increase could support the dollar," Manimbo said.

Nearly 60% of economists in a Reuters poll expect a tapering announcement in the next quarter.

The dollar index, which measures the greenback against a basket of six currencies, was 0.03% higher at 90.515, after rising as high as 90.677, its highest since May 14.

The pound fell to a one-month low against the dollar on Tuesday in what analysts said was the breaking of a technical level that did not change the bullish narrative on the British currency. The British currency was last down 0.19% against the greenback.

In cryptocurrencies, bitcoin lingered just above the $40,000 level, a day after it climbed above that mark for the first time in more than two weeks, aided by the promise of fresh investment from major backer MicroStrategy and an upbeat tweet from Tesla boss Elon Musk.

Musk on Sunday flagged that the carmaker could resume transactions using the token if miners can use cleaner energy to process them.