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Dollar Holds Slender Gains as Focus Shifts to Fed Meeting

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By Yasin Ebrahim

Invesitng.com – The dollar held onto slender gains on Tuesday, as concerns about the economic recovery were laid bare following data casting doubt on the strength of the U.S. consumer ahead of the Federal Reserve's two-day meeting.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.06% to 93.67.

The Conference Board’s consumer confidence gauge fell to a reading of 92.6 in July from 98.3 in June, missing economists' forecast for a reading of 94.5.

The weakness in the U.S. consumer, the driving force behind the economy, comes as some U.S. states have been forced to pause, or even roll back reopening measures amid a surge in cases that if continue could see consumer confidence deteriorate further.

"Should we see the current set-back in the reopening process manifest itself in a back-up in unemployment, we will very likely see confidence fall further as a consequence," Jefferies (NYSE:JEF) said.

The latest sign of a wobble in the economy comes just as the Federal Reserve is slated to get its two-day meeting underway.

The meeting is expected to conclude with policymakers voting to keep rates unchanged.

Against the backdrop of rising coronavirus cases that threaten the economic outlook, however, the Fed could opt for a more dovish tone on monetary policy on Wednesday.

Much of the focus on Wednesday is expected to center around how the Fed plans to deliver forward guidance on future monetary policy action.

Some Fed members have recently expressed a desire to tie forward guidance to an economic metric such as inflation.

But Wall Street appeared divided on whether it is too early for the Fed to adopt this approach with some believing that the transition will come later in the fall.

Commerzbank (DE:CBKG) said it was "doubtful" that the Fed will officially adopt this new approach at this week's meeting, but added that Fed chairman Jerome Powell "could drop some hints" in the post-meeting press conference.

Grant Thornton's chief economist Diane Swonk asserts that the time has come for the Fed to clarify its position on forward guidance as "the resurgence in hospitalizations and deaths due to COVID-19 is taking a toll on growth."

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