The U.S. dollar strengthened against its most major opponents in the European session on Tuesday, as U.S. producer prices increased slightly more than expected in November and investors focus on the Federal Reserve's two-day policy meeting beginning today, which is almost certain to end up with a third rate hike of this year.

The Fed is widely expected to hike benchmark rate by a quarter point to 1.5 percent when it concludes meeting on Wednesday. The FOMC will publish its updated economic projections, including the individual 'dot plot' projections of the Federal Funds rate for two years ahead.

Following the decision, outgoing Fed Chair Janet Yellen will hold a press conference, which will provide clues about the outlook for future rate hikes.

Data from the Labor Department showed that the producer price index for final demand climbed by 0.4 percent in November, matching the increases seen in the two previous months. Economists had expected prices to rise by 0.3 percent.

Excluding food and energy prices, the core producer price index rose by 0.3 percent in November after climbing by 0.4 percent in October. Core prices had been expected to edge up by 0.2 percent.

The greenback held steady against its major rivals in the Asian session, with the exception of the yen.

The greenback recovered to 0.9923 against the franc, from a 5-day low of 0.9890 hit at 4:30 am ET. If the greenback extends rise, 1.00 is possibly seen as its next resistance level.

The greenback reversed from an early low of 113.37 against the yen, bouncing off to 113.54. On the upside, 115.00 is possibly seen as the next resistance for the greenback.

Data from the Ministry of Economy, Trade and Industry showed that Japan's tertiary activity index increased at a faster-than-expected pace in October, after falling in the previous two months.

The tertiary activity index climbed 0.3 percent month-over-month in October, reversing a 0.2 percent decrease in September. Economists had expected a 0.2 percent rise for the month.

The greenback advanced to a 4-day high of 1.1742 against the euro, after having fallen to 1.1793 at 3:45 am ET. Continuation of the greenback's uptrend may see it challenging resistance around the 1.16 region.

Survey data from the Mannheim-based think tank ZEW showed that Germany's economic sentiment weakened in December.

The ZEW Indicator of Economic Sentiment fell 1.3 points to 17.4 in December. The indicator remained below its long-term average of 23.7 and the expected level of 17.6.

The greenback bounced off to 1.2855 against the loonie, from its early 4-day low of 1.2813. The next possible resistance for the greenback is seen around the 1.30 mark.

On the flip side, the greenback held steady against the pound, after having eased to 1.3361, from an early 2-week high of 1.3311. The pair was valued at 1.3337 when it finished deals on Monday.

Data from the Office for National Statistics showed that UK inflation accelerated to a more than five year high in November.

Inflation rose unexpectedly to 3.1 percent in November from 3 percent in October. Inflation was last higher in March 2012. The rate was expected to remain at 3 percent.

The greenback held steady at 0.6940 against the kiwi and 0.7564 against the aussie, following an early multi-week low of 0.6953 and a 6-day low of 0.7580, respectively. The greenback ended Monday's trading at 0.6911 against the kiwi and 0.7526 against the aussie.

U.S. monthly budget statement for November is due later in the session.

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