FOREX-Dollar sits tight ahead of Fed meeting, key US data

Reuters

* Dollar index holds near six-month peak, euro eight-month trough

* FOMC, U.S. GDP & payrolls key tests for markets this week

* Euro zone inflation and China PMI also in focus

By Ian Chua

SYDNEY, July 29 (Reuters) - The dollar held close to a six-month peak against a basket of major currencies early on Tuesday, having gone virtually nowhere overnight as investors kept to the sidelines ahead of a policy review by the Federal Reserve.

The Fed is sure to cut its monthly bond-buying program by another $10 billion as it looks to wind up the scheme later in the year, but the focus for markets is on any clues to the timing of the first interest rate hike.

With other key data such as U.S. gross domestic product and the closely watched non-farm payrolls report still to come, investors were content to sit on their hands.

As a result, the dollar index drifted in an excruciating 76 tick range for all of Monday, compared with Friday's 283 tick range. It was last flat at 81.006.

The euro, meanwhile, was pinned near an eight-month trough of $1.3421 set on Friday. It traded at $1.3438, having shuffled between $1.3427 and $1.3440 on Monday.

Against the yen, the dollar was steady at 101.85, while the common currency barely budged at 136.84.

A mixed bag of U.S. data, including a disappointing fall in sales of previously-owned homes, failed to pry markets out of their torpor. Wall Street ended nearly flat.

"Clearly the markets' focus is on events later in the week," analysts at National Australia Bank said in a report.

The dollar bloc currencies also put in an uninspired performance with no follow-through selling in the loonie following Friday's break out in USD/CAD.

That saw the dollar back at C$1.0800, consolidating Friday's 0.7 percent rally to a five-week high of C$1.0822.

The previous session's sluggishness is likely to extend during the Asian day in the absence of any meaningful economic data.

Euro zone inflation and PMI surveys for China and the euro zone later this week are also keenly awaited.

"Expect another day of hushed trading as the market continues to bide its time ahead of the mass data releases at the end of the week," said Evan Lucas, strategist at IG in Melbourne.

The lack of volatility in currency markets has been a persistent feature for much of this year and the semi-annual reports on foreign exchange turnover appeared to highlight this trend.

In April, the average daily volume in total over-the-counter foreign exchange instruments in North America was 20 percent lower than a year ago, figures from the New York Foreign Exchange Committee showed.

(Editing by Shri Navaratnam)

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