The dollar was steady on Monday with no major US data releases and ahead of Wednesday's Federal Open Market Committee meeting at which the central bank is overwhelmingly expected to increase US interest rates. Britain's pound was back under pressure, down half a percent, after falling more than 2 percent following last week's snap elections that left the Conservatives short of a ruling majority and cast a cloud of political uncertainty over the country.
Fed fund futures prices show investors have priced in about a 96 percent chance that the US central bank raises overnight interest rates to between 1.00 and 1.25 percent on Wednesday. The nearly universal anticipation of a Fed rate hike along with a more accommodative stance from the European Central Bank after last week's policy meeting and an expectation for the Bank of England to stay on the sidelines because of political uncertainty has helped the dollar fight off a spate of recent negative data on the US economy.
"Ahead of the FOMC meeting things are going to be relatively quiet," said Juan Perez, currency strategist at Tempus Inc in Washington. "The foreign exchange narrative is being dictated by the dynamics of (British Prime Minister) Theresa May's negotiations in trying to form enough of a government so the Conservatives have the ability to rule." Sterling fell 0.55 percent to $1.2650.
"Our forecasts are under review but we have been one of the more bullish houses on the street and it is fairly clear that the risks are to the downside," said Barclays' strategist Hamish Pepper. The dollar index, which tracks the greenback against six major currencies, was little changed at 97.248. The euro also was flat at $1.12.
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