The U.S. dollar strengthened on Tuesday ahead of the Federal Reserve’s latest policy meeting on interest rates, while the Japanese yen weakened following suspected government intervention.

Fed meeting approaching

On a general view, the dollar has been in high demand this month, as a series of stronger-than-expected U.S. inflation data has caused currency market investors to discount the possibility of early interest rate cuts by the Federal Reserve.

The Fed begins its final two-day meeting later today and is expected to keep rates unchanged, maintaining them at the high levels of 5.25%-5.5% when the meeting concludes on Wednesday.

Investors are looking for signs of whether the Fed still plans to cut interest rates this year, with initial expectations for March shifting first to June and now to September.

Despite retail sales growth in Germany the euro suffers

In Europe, the EUR/USD fell 0.2% to 1.0703, struggling against the strengthening dollar despite data showing a larger-than-expected increase in German retail sales in March.

Retail sales increased 1.8% from the previous month, indicating a recovery in consumption that is a positive sign for Germany, the eurozone’s largest economy, which has just avoided a recession.

Market traders are awaiting the latest inflation data along with growth for the Eurozone as a whole due out on Tuesday.

Preliminary eurozone consumer price inflation is forecast to have risen by 2.4% y/y during April, still just above the European Central Bank’s medium-term target of 2.0%, while the region is expected to have grown by only 0.1% during the first quarter, suggesting growth of only 0.2% y/y.

The ECB has indicated it is likely to cut its deposit rate in June, though it remains uncertain how many additional cuts, if any, will occur this year.

GBP/USD loses nearly 0.2% to 1.2534, losing ground against the stronger dollar, and sterling loses nearly 0.7% in April.

Yen retreats after hints of intervention

In Asia, the USD/JPY rose 0.4% to 156.88, and the yen gave up some ground against the greenback, reversing some of the strong gains from the previous day suspected to be due to government intervention.

The pair remains far from the 34-year high of 160.245 recorded last session.

Japanese authorities have not confirmed any intervention to support the yen, though Japan’s top currency diplomat, Masato Kanda, mentioned on Tuesday that authorities are preparing to address ongoing currency fluctuations.

The yen’s loss of strength was helped by mixed data in Japan on Tuesday. Industrial production rose more than expected in March, retail sales missed expectations by a fairly wide margin, showing a muted outlook for consumer spending and inflation.

USD/CNY is up 0.1% to 7.2416 after mixed purchasing managers’ index data showed a slowdown in the Chinese economy.

Official manufacturing PMI data showed a less severe slowdown than expected, while growth in non-manufacturing activity was significantly below forecasts.

AUD/USD was down 0.6% to 0.6527, with the Australian dollar hit by the release of notably weaker-than-expected retail sales data.