Quiet day for FX as dollar steadies near six-month highs

The dollar was little changed on Monday, holding near the highest level in six months as FX markets awaited key economic releases and Federal Reserve`s policy meeting later in the week.

Investors pulled the breaks on the stronger dollar, where the Dollar Index paused for a breath after two strong weekly performances on upbeat US economic data. The dollar drew much of its strength from the outlook of the Fed`s monetary policy, with speculation that the central bank will hike interest rates sooner than expected amid signs of improvement in the world`s largest economy.

On Wednesday, the Federal Open Market Committee (FOMC) will announce the rate decision for July, with expectations to keep the benchmark interest rate at a record-low 0.25%, as well as the completion of the Federal withdrawals for the quantitative easing policy, bringing down the program to $35 billion $25 billion.

The QE3 program will be reduced by buying government bonds to 15 billion dollars from 20 billion, with a reduction of real estate-backed bond program to $10 billion from $15 billion. The Fed is expected to continue withdrawals until October 2014 amid growing expectations that the US central bank will hike the interest rates earlier than expected.

The US jobs report, due to be released Friday, is expected to indicate more evidence on the health of the US labor market, which has recently witnessed a remarkable development after a very low unemployment rate, expected to stay at 6.1% in July, while the consensus are calling for 225-thousand gain in non-farm payrolls this month, from the previous increase of 288 thousand.

Investor continues to weigh corporate earnings, but the markets will closely watching Friday`s July non-farm payroll figures out of the US Labor Department. Meanwhile, the  dollar remained firm against a six-currency basket after a two-week gain.

On the other hand, the euro steadied against its US counterpart, holding near the lowest level since November. The  EUR/USD  was trading around 1.3435 compared with the day`s open at 1.3429.

The dollar saw a thin trade against its Japanese counterpart, where  USD/JPY  held around 101.80 after posting a session high of 101.89 and low of 101.73.