The dollar edged higher from two-week lows on Monday, recovering after Friday's bout of profit-taking following a robust US jobs report, as investors looked to this week's Federal Reserve's policy meeting in which it is expected to raise rates by a quarter percentage point. "We remain bullish on the dollar, but as Friday's events suggested, a lot of good news is already priced into the dollar at current levels," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.
"Yields are high enough and spreads are wide enough to keep the dollar broadly supported against its major currency peers for the moment, but additional gains will likely hinge on the messaging from the Fed at the FOMC." The Federal Open Market Committee will hold a two-day monetary policy meeting, which starts on Tuesday. Fed funds futures on Monday have priced in a nearly 90-percent chance the Fed will hike rates on Wednesday.
Sterling, which has been one of the worst performers against the dollar over the last two weeks, rose half a percent after the devolved Scottish government demanded the right to hold a new referendum on independence. In late morning trading, the dollar was slightly higher against a basket of currencies at 101.31 and was marginally up against the euro. The single European currency was last at $1.0664. The dollar index earlier fell to a two-week low of 101.01. Sterling, as a result, held gains against the dollar rising 0.5 percent to $1.2229. Against the yen, the dollar slipped 0.1 percent to 114.68 yen.
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