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Dollar retreats from two-week high ahead of Fed decision - The U.S. dollar edged lower Tuesday, but remained near a two-week high as traders awaited a widely expected interest rate hike from the Federal Reserve later in the session.

At 02:55 ET (06:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 100.960, after pushing as high as 101.65 overnight for the first time since July 11.

Fed to hike again

The dollar received a boost Tuesday when data showed U.S. consumer confidence rose to a two-year high in July as inflation retreated while the economy showed resilience despite the higher interest rates.

The U.S. Federal Reserve completes its two-day policy-setting meeting later this session and is widely expected to authorize a quarter-point hike, in what would be the 11th hike in its past 12 policy meetings.

However, uncertainty exists over whether the central bank will seek to increase rates again later in the year or whether this hike marks the end of its aggressive tightening cycle.

Thus, comments from Chair Jerome Powell following the decision will be studied carefully for clues of the thinking of the policymakers.

Analysts at Goldman Sachs expect a hike later Wednesday to be "the last" of its tightening cycle, but the Fed will ultimately choose to "remain more hawkish than market pricing."

"The key question is how strongly [Fed] Chair [Jerome] Powell will nod toward the 'careful pace' of tightening he advocated in June, which we and others have taken to imply an every-other-meeting approach," Goldman added, in a note published late last week.

Euro edges up from two-week low

EUR/USD rose 0.1% to 1.1067, just above the previous session's low of 1.1036, a level last seen on July 12.

The European Central Bank is also widely expected to increase interest rates by a further 25 basis points when it meets on Thursday, but traders are beginning to question whether this central bank can afford another hike this year given the building evidence of an economic slowdown.

Monday's Purchasing Managers surveys pointed to deteriorating manufacturing activity in the eurozone, while Tuesday’s German Ifo suggested business morale in the region’s most important economy deteriorated in July for the third month in a row.

Goldman Sachs on Tuesday cut its 2023 growth forecast for the eurozone, following the weaker economic activity data.

Aussie falls on soft inflation data

AUD/USD fell 0.2% to 0.6776, falling after softer-than-expected consumer price index data ramped up bets that the Reserve Bank of Australia was unlikely to further increase interest rates.

GBP/USD traded largely unchanged at 1.2898, USD/JPY fell 0.2% to 140.68, ahead of Friday’s Bank of Japan meeting, while USD/CNY rose 0.2% to 7.1513 as optimism over more stimulus measures in China cooled ahead of the Fed decision.

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