NEW YORK (Reuters) - The U.S. dollar rose to three-week highs against a basket of currencies on Tuesday as the Federal Reserve begins a two-day policy meeting where it is widely expected to raise interest rates for the fifth time since 2015.
Investors will be watching for any signals that Fed officials are more optimistic on the prospect of faster growth as lawmakers appear close to passing a large overhaul of the tax code.
“People are looking for a little more confidence on the fact that tax legislation is set to pass,” Sireen Harajli, a foreign exchange strategist at Mizuho in New York. “The general theme is that the dollar will continue to find support as we approach the end of the year.”
The dollar index gained to 94.10, the highest since Nov. 21. The greenback rose more than 1 percent last week, its biggest weekly rise since the end of October, but is down around 8 percent this year.
Investors will also be watching the Fed’s statement at the conclusion of the meeting on Wednesday for concern about low inflation.
Fed forecasters expect three additional rate hikes next year though bond markets see two as more likely.
“Deflationary risks generally around the world are slowly receding and probably further in the rear view mirror these days than at the start of the year,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. “Global central banks seem to be more optimistic about the outlook.”
U.S. producer price data on Tuesday showed an increase in wholesale inflation, increasing hopes that price pressures may be rising from sluggish levels.
The Labor Department said its producer price index for final demand increased 0.4 percent last month.
In the 12 months through November, the PPI shot up 3.1 percent. That was the biggest gain since January 2012 and followed a 2.8 percent rise in October.
Consumer Price Index (CPI) data on Wednesday will be a key data focus for further clues on price pressures.
The New Zealand dollar set a one-month high as investors welcomed the appointment of national pension fund chief Adrian Orr to head the Reserve Bank from March.
The kiwi was last up 0.41 percent against the U.S. dollar at $0.69.
Additional reporting by Saikat Chatterjee in LondonEditing by Chizu Nomiyama