Dollar nears year high after pre-Fed data shock, yen slips

The dollar inched towards its highest level since November on Wednesday ahead of a Federal Reserve interest rate decision later in the day, after data on Tuesday showed more signs of inflationary pressure in the US economy, reports Reuters.

Meanwhile, the yen dipped to its lowest level since suspected intervention by Japanese authorities on Monday, as traders tested the resolve of the Ministry of Finance.

The dollar index, which tracks the currency against six major peers, rose 0.066 per cent at 106.370, after earlier nearing the 106.51 mark that would be the highest since Nov. 1.

Global markets were somewhat subdued, with traders in many countries off for May Day or International Workers' Day.

The euro was down very slightly to $1.0623, after falling 0.52 per cent the previous day when the US data pushed the dollar higher.

Figures released on Tuesday showed that growth in US labour costs accelerated in the first quarter of the year, with the employment cost index (ECI) rising 1.2 per cent, more than the 1.0 per cent expected by economists.

A string of stronger-than-expected data has caused investors to rein in their bets on how much the Fed will cut interest rates this year. Traders on Wednesday expected just 29 basis points of cuts by December, down from more than 170 basis points at the start of the year.

Expectations that rates will stay higher for longer has pushed up US bond yields sharply, making them more attractive and boosting the dollar.

"The relentless stream of above-expected US inflation data continues," said Chris Turner, global head of markets at ING. "Yesterday it was the turn of the employment cost index to surprise on the upside."