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Dollar stumbling into Fed rate meeting

There is little respite for the dollar ahead of the Federal Reserve’s July rate-setting meeting, with the euro holding up above $1.16, although the pressure has eased on Europe’s export stocks.

The shared currency last consistently held that level in early 2015, although it popped over it for two sessions in August that year and made it up over the line once in May 2016.

In morning trade on Tuesday, the euro is up 0.1 per cent at $1.1652, while the dollar index is mired at its lowest level since June 2016 at 93.974.

The outcome of the Fed meeting won’t be known until Wednesday, in the European evening, leaving the prospect of fresh insight into the US central bank’s thinking on rate tightening likely to keep the market in thrall for the time being.

Investors have had time to become accustomed to the Fed’s tightening of monetary policy, while the move at the European Central Bank toward reducing its monthly, €60bn stimulus spending is relatively novel, leaving the room for the euro’s rally against the dollar, just as the Fed stresses a cautious approach.

Mikael Olai Milhøj, senior analyst at Danske Bank says:

Fundamentally, the euro is still undervalued against the dollar and we still see the case for a higher euro six to 12 months ahead.

We do not think there will be major changes to the Federal Reserve’s statement, although it is likely the probability is skewed towards a slightly more dovish tone given inflation has now been weaker than expected for four consecutive months

The re-evaluation of the shared currency has been felt by shares in European exporters, although there is respite for them on Tuesday. Germany’s export-heavy Xetra Dax 30 is up 0.2 per cent, trimming its recent losses. It started to weaken in tandem with the euro’s ascent in late June.

The wider Euro Stoxx 600 is also up 0.2 per cent, while London’s FTSE 100 outperforming, up 0.5 per cent, helped by a strong showing in its heavily-weighted mining sector.

The yen is hovering near its strongest level in more than a month as the dollar’s global wilt continues. Japan’s currency firmed slightly in early afternoon trading to ¥111, having touching its highest level since mid-June on Monday.

In Tokyo the Topix is down 0.1 per cent as among industrial stocks offsets wider gains. The Shanghai Composite is down 0.3 per cent and the Hang Seng in Hong Kong is down 0.1 per cent.