Forex – Dollar Set for Biggest Monthly Gain in More Than a Year – The dollar extended gains against a basket of major currencies on Monday as inflation neared the Federal Reserve’s target, strengthening the central bank’s case to proceed with gradual rate hikes.

The , which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.38% to 94.66 after hitting a session high of 91.70. The dollar was on track to post its biggest monthly gain in more than a year.

The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, in the 12 months through March, nearly matching the Fed’s 2% target.

and , meanwhile, rose 0.3% and 0.4%, respectively, in March.

The uptick in inflation comes a day before the Federal Reserve Open Market Committee (FOMC) is slated to begin its two-day policy meeting on Tuesday. But some market participants have downplayed the prospect of more aggressive language on monetary policy tightening appearing in the on Wednesday.

Stifel said Monday the Fed would require more evidence of sustained 2% inflation in the months to come to conclude that it its price objective has been achieved, paving the way for further tightening of monetary policy.

“Ahead of the June FOMC meeting, April and May inflation readings will also need to indicate the Fed has clearly met the Committee’s price objective. Without clear evidence of such, it will be difficult for the Fed to move ahead with a further removal of accommodation in the near-term,” Stifel said.

According to’s , 94% of traders expect the Fed to on Wednesday. The prospect of a fourth rate hike in December, however, was just under 50% following a dramatic rise in recent weeks.

The housing sector, meanwhile, remained subdued as the National Association of Realtors’ rose just 0.4% to a reading of 107.2 in March.

Also supporting the dollar was ongoing weakness in the both the pound and euro.

fell 0.18% to $1.3757 as investors continued to cut bets on a Bank of England rate hike next month following a string of softer economic data including first-quarter GDP released last week that undershot economists’ forecasts.

fell 0.46% to $1.2075 amid a slump in .

rose 0.22% to Y109.30, while fell 0.05% to C$1.2823.

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