Dollar gains as traders await next week's Fed meeting

By Saqib Iqbal Ahmed and Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The dollar rose for a second straight session on Thursday as traders further trimmed short currency positions and braced for next week's Federal Open Market Committee meeting at which the U.S. central bank is expected to raise interest rates for the first time this year.

The dollar index <.DXY>, which measures the greenback against a basket of six other major currencies, was up 0.5 percent at 90.106. Since the beginning of the month, the index has lost about 0.7 percent.

"After the recent mixed-bag data releases, including those strong job gains and weak wages growth reported on Friday, traders may be trimming their short dollar positions ahead of next week's FOMC meeting," said Fawad Razaqzada, market analyst at Forex.com in London.

The outlook for the greenback, however, remains bleak amid political uncertainty in U.S. President Donald Trump's cabinet and renewed worries about trade wars, analysts said.

"The Fed raised rates three times last year and the U.S. dollar still weakened overall, but surrounding each of those Fed interest rate increases there was some firming in the U.S. dollar, but then it tended to soften after," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The greenback found some support from upbeat U.S. data on Thursday, which showed the number of Americans filing for unemployment benefits fell last week.

Other data on Thursday showed a rise in the prices of imported goods in February amid U.S. dollar weakness, bolstering expectations that inflation will pick up this year. Labor market strength and a steady increase in price pressures could allow the Fed to further raise rates at a gradual pace.

In mid-afternoon trading, the dollar fell 0.2 percent to 106.13 yen as trade tensions encouraged investors to buy the Japanese currency.

Traders are concerned about a U.S. shift towards increased protectionism under the Trump administration, with Wall Street rattled on Wednesday after the president sought to impose fresh tariffs on China.

The yen is expected to benefit from any increase in trade protectionism, given Japan's strong current account surplus and the currency's reputation as a safe haven.

The euro fell 0.5 percent against the dollar to $1.2308 , still pressured by dovish talk from European Central Bank President Mario Draghi. The ECB head said on Thursday that low inflation has kept the bank from ending a key stimulus program.

The dollar also posted sharp gains versus the Swiss franc, up 0.6 percent at 0.9508 franc after the Swiss Central Bank kept its ultra-loose monetary policy in place.

(Reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed; Editing by James Dalgleish)

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