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Investing.com - The U.S. dollar slipped slightly lower Wednesday, handing back some of the strong gains seen earlier this week ahead of the latest Federal Reserve’s policy decision, while the euro is on track for its first monthly loss this year.
At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, dropped 0.1% to 98.542, hovering near a one-month high and on course to post its first month of gains this year.
Fed set to conclude policy meeting
The U.S. currency has gained strongly this month, benefiting from a combination of the U.S.-EU trade deal, positioning adjustments, and month-end flows.
However, “these factors should start to fade now, shifting all the attention to data and the Fed,” said analysts at ING, in a note. “Before diving into the U.S. calendar, it’s worth noting that the positioning squeeze means the dollar is in a less oversold position and therefore faces more balanced risks.”
The Federal Reserve concludes its two-day policy meeting later in the session, and is widely expected to remain unchanged on rates, making comments from Chair Jerome Powell crucial to gauge the policy path, especially given U.S. President Donald Trump’s constant demands for rate cuts.
Data released on Tuesday showed that U.S. job openings and hiring decreased in June, pointing to a further slowdown in labor market activity ahead of the all-important July jobs report on Friday.
Traders later Wednesday will attempt to digest private payrolls growth for July as well as the flash reading of the second-quarter gross domestic product number.
Economists anticipate that the world’s biggest economy will return to growth of 2.5% during the April to June period, following a contraction of 0.5% in the first quarter.
Euro set for monthly loss
In Europe, EUR/USD gained 0.1% to 1.1553, with the single currency just above the previous session’s one month low, and on course for its first monthly drop this year.
The single currency is still over 11% higher this year, having benefited from the dollar losing its luster due to Trump’s erratic trade policies, prompting investors to look for alternatives.
The flash estimate of second-quarter growth in the eurozone is due later in the session, and will be of interest as investors seek guidance surrounding further interest rate decisions by the European Central Bank.
Data released earlier Wednesday showed that the French economy grew 0.3% in the second quarter, beating forecasts, as a rebound in household spending boosted the eurozone’s second-biggest economy.
The equivalent German data was less impressive, as the largest economy in the eurozone contracted by 0.1% in the second quarter.
The eurozone is expected to just show no growth as a whole during the second quarter, as the positive export effect in the first quarter is unwound.
“The stark divergence in growth news between the US and Europe should underpin EUR/USD bearish momentum in our view, and there is a good chance of a break below 1.150,” said ING.
GBP/USD rose 0.1% to 1.3363, with sterling trading just above a two-month low.
BOJ meeting looms
Elsewhere, USD/JPY traded 0.4% lower to 147.87, after advancing sharply in recent sessions, with focus squarely on the BOJ’s decision on Thursday. The central bank is widely expected to leave rates unchanged, while remaining non-committal to raising rates amid uncertainty over the Japanese economy and government leadership.
AUD/USD dropped 0.1% to 0.6510, after consumer price index inflation data read slightly cooler than expected for the second quarter.
The print showed inflation easing further from the prior quarter, while core inflation remained within the Reserve Bank of Australia’s 2% to 3% annual target. Monthly CPI data for June also showed a bigger-than-expected drop.
Softer inflation gives the RBA more headroom to cut interest rates, after the central bank unexpectedly left rates unchanged during its July meeting.
USD/CNY traded marginally lower to 7.1764, with PMI data on Thursday expected to show some improvement after the U.S. and China further deescalated their trade conflict in recent months.