The US dollar declined across the board on Monday, easing off 12-year highs ahead of the Federal Open Market Committee policy meetings.
The US dollar index, a trade-weighted average of the dollar against a basket of six currencies, declined 0.62 percent to 99.70. The index soared past the 100.00 mark last week for the first time in 12 years on renewed rate-hike optimism.
The dollar eased off 12-year highs against the euro, which capitalized on the greenback’s weakness. The EUR/USD climbed back above the 1.05 level on Monday. It was trading at 1.0570 in Tuesday’s Sydney session.
Disappointing economic data weighed on the greenback on Monday and extended into Tuesday’s Sydney session. US industrial production rose only 0.1 percent in February, as manufacturing and mining output declined. Manufacturing production declined for the third consecutive month, underscoring weaker economic growth in the first quarter.
A median estimate of economists forecast industrial production to edge up 0.2 percent in February after a revised 0.3 percent drop in January.
Separately, the National Association of Home Builders said builder confidence declined unexpectedly in March, although the general outlook remained positive. The housing market index slipped to 53 this month from 55 in February. A reading above 50 reflects optimism in builder confidence, whereas a reading below that level signifies pessimism.
“The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards,” said NAHB chief economist David Crowe.
He added, “These obstacles notwithstanding, we are expecting solid gains in the housing market this year, buoyed by sustained job growth, low mortgage interest rates and pent-up demand.”
The National Association of Relators and US Department of Commerce will report on home sales next week.
The Federal Open Market Committee kicks off its two-day policy meetings in Washington on Tuesday. On Wednesday the central bank will release an official rate statement, accompanied by a summary of economic projections.
The foreign exchange markets will be especially volatile on Wednesday, as investors look to see whether the Fed drops the word “patient” from its rate statement referring to the period of time before raising interest rates. The Fed is under renewed pressure to begin normalizing monetary policy after Chair Janet Yellen vowed to remain patient last month.
The Fed has maintained its trend-setting interest rate at 0.25 percent since December 2008.