NEW YORK: The dollar rose broadly on Wednesday, moving in a tight range after solid US economic data, as investors positioned for fresh guidance from the Federal Reserve on when US interest rates are likely to rise.
US core inflation increased more than expected in February, and US housing starts beat expectations for the month, which strengthened the dollar against major rivals. But the moves were subdued as investors expected the data would have little to no impact on the Federal Open Market Committee decision on Wednesday afternoon.
"The main focus is the FOMC," said BK Asset Management Managing Director Kathy Lien in New York.
"The bottom line is that investors are looking for a positive outcome, so they're buying dollars, but they don't want to be long dollars overly aggressively ahead of the rate decision. So it's just cautious positioning with a bias to the long side."
The dollar index rose 0.3 percent to 96.926, pulling further away from a one-month low of 95.938 set last Friday.
The euro fell 0.35 percent against the dollar to $1.1069.
No policy action is expected from the Fed on Wednesday, but the market will be sensitive to any guidance on its next change in interest rates. Any signal that more than one increase is in store this year will help the dollar, while anything dovish could keep it pinned down.
Interest rate futures are pricing in about a 50 percent chance of a quarter-point increase in June.
The focus will also be on the Fed's forecasts for future rises, which is still pointing to four rate hikes this year.
The dollar rose 0.5 percent against the Japanese yen, holding gains that followed Bank of Japan Governor Haruhiko Kuroda's statement that there is room to cut rates to around negative 0.5 percent from the current negative 0.1 percent.
On Tuesday, the BoJ passed on the chance to expand its massive asset-buying program but offered a bleaker view of the economy. Some traders said the combination cast a shadow on risk sentiment, which bolstered demand for the safe-haven yen.
The dollar rose strongly against the Brazilian real, gaining 1.4 percent after news that former President Luiz Inacio Lula da Silva had resumed talks with President Dilma Rousseff after accepting a position in her cabinet.
The real has fallen more than 6.5 percent this week as prospects that Rousseff will be removed from power have dissipated.
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