Dollar Falls as Markets Await What Could Be Last US Rate Increase

0714 GMT – The dollar falls as markets await a decision by the U.S. Federal Reserve later, where the central bank is widely expected to raise interest rates by 25 basis points in what could prove to be its last increase in the current cycle. Focus will center on whether the Fed keeps the door open to another rate increases or whether it indicates a pause in June, RBC strategists say in a note. “In the statement, the key factor to watch is whether the line ‘some additional policy firming may be appropriate’ is altered or removed altogether – no change would be read as hawkish,” they say. The DXY dollar index falls 0.3% to 101.660. (jessica.fleetham@wsj.com)

Euro Strengthens Faster Than Expected Against Dollar

0704 GMT – The euro’s appreciation against the dollar—rising to around 1.10 from below parity over the past six months—was expected but has come sooner than anticipated, Maria Martinez, principal economist at BBVA, says in a note. The driving factors include the fact that the European economy seems to be overcoming the impact of the energy shock caused by the war in Ukraine, she says. Another driving factor has been the narrowing spread between German Bund and U.S. Treasury yields, “reflecting how the market is adjusting to the growth outlook in Europe, and the slower momentum of interest rate hikes in the U.S.,” she says. EUR/USD trades up 0.3% at 1.1033. (emese.bartha@wsj.com)