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Dollar strengthens on higher US inflation

The US dollar picked up strength against other major currencies on Tuesday on a stronger-than-expected inflation report that came just as the Federal Reserve began a two-day monetary policy meeting.

NEW YORK: The US dollar picked up strength against other major currencies on Tuesday on a stronger-than-expected inflation report that came just as the Federal Reserve began a two-day monetary policy meeting.

The Fed is not expected to make any changes to current policy -- the federal funds rate will remain near zero and the monthly stimulus bond buying will be tapered back another $10 billion to $35 billion, on track to be wound up later this year.

But there are expectations that the predictions on interest rates, economic growth and inflation over the next three years by Fed officials could shift the picture of when the fed funds rate could begin to rise.

The policy-setting Federal Open Market Committee has repeatedly pointed to the first rate increase, since it was cut to the current level in late 2008, taking place during the second half of next year.

But some analysts think that the consensus Fed view could move that timing forward a little, given some strength in the jobs market and a firming of inflation.

Data released Tuesday showed the consumer price index in May up 2.1 percent over a year ago, putting inflation close to the Fed's target range.

The euro fell immediately from $1.3570 to $1.3540 on the report.

At least, said Jim O'Sullivan, chief US economist at High Frequency Economics, "the (inflation) data will clearly discourage Fed officials from making their forward guidance any more dovish than it is already."

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