Dollar approaches year high post-shock pre-Fed data; Yen slips

Dollar at year high: As anticipation builds ahead of the Federal Reserve's interest rate decision, the dollar edged closer to its highest level since November, spurred by inflationary pressures in the US economy revealed in recent data.

On the other hand, the yen experienced a dip to its lowest level since suspected intervention by Japanese authorities, as traders tested the waters against the Ministry of Finance.

The dollar index, which gauges the currency against six major peers, exhibited a modest rise, inching towards the 106.51 mark, its highest since November 1.

In light of the May Day holiday observed in several countries, global markets remained relatively subdued.

The euro saw a slight decline to $1.0623, following a 0.52 per cent drop the previous day prompted by robust US data driving the dollar's ascent.

Tuesday's release of US labour cost data, indicating a 1.2 per cent increase in the employment cost index (ECI), exceeding economists' expectations of 1 per cent, further bolstered the dollar's position.

This trend of stronger-than-expected US data has prompted a revision in investors' expectations regarding the Federal Reserve's interest rate cuts for the year, with projections for cuts by December now reduced to 29 basis points, down from over 170 basis points earlier in the year.

As US bond yields rise, making them more appealing to investors, the dollar gains further traction.

Chris Turner, Global Head of Markets at ING, noted, "The relentless stream of above-expected US inflation data continues... Yesterday it was the turn of the employment cost index to surprise on the upside."

While the Fed is expected to maintain rates during its upcoming announcement, all eyes are on Chair Jerome Powell's remarks regarding recent economic data.

The Japanese yen weakened slightly to 157.92 per dollar, amid ongoing speculations of Japanese authorities intervening to bolster the currency following a sharp rally observed on Monday.

The Swiss franc also saw a decline, dropping to its lowest since October, in the aftermath of a surprise interest rate cut by the Swiss National Bank in March.

Meanwhile, Bitcoin faced a setback, falling below $58,000 amid reduced expectations of Fed rate cuts, impacting rate-sensitive assets like cryptocurrencies.

(With Reuters inputs)