By Joseph Adinolfi and Sara Sjolin, MarketWatch , Hiroyuki Kachi

Canadian dollar rises after BOC keeps interest rates on hold

The dollar edged higher against the yen on Wednesday but weakened against the euro and pound, as a rally fueled by the possibility of a summer interest-rate hike stalled.

Recent polls suggested the U.K. likely won't vote to leave the European Union during a crucial referendum next month, sending the pound to its highest level against the dollar in three weeks.

The ICE U.S. Dollar index, , a key gauge of the dollar's strength, was down 0.1% at 95.4960. The pound bought $1.4714 late Wednesday in New York, compared with $1.4618 late Tuesday.

Among other things, investors are looking ahead to remarks from Federal Reserve Chairwoman Janet Yellen, expected Friday.

The greenback has strengthened broadly in recent weeks amid repeated warnings from Federal Reserve officials that the central bank could raise interest rates two or three times this year. Impressive U.S. new-home sales data (http://www.marketwatch.com/story/new-home-sales-roar-back-crushing-forecasts-with-a-619000-annual-pace-in-april-2016-05-24) helped support the dollar on Tuesday. Last week, minutes from the Fed's April meeting showed a majority on its policy-setting committee would support a rate increase in June if economic growth remained robust.

The dollar had sunk sharply during the first six weeks of the year as a spate of mixed U.S. data and anxieties about slowing global growth prompted investors to dial back their expectations for a rate increase until the fourth quarter.

On Wednesday, the euro edged slightly higher after a group of eurozone finance ministers and the International Monetary Fund reached an agreement on unlocking the next tranche of bailout funding for Greece (http://www.marketwatch.com/story/breakthrough-greek-debt-deal-reached-with-eurozone-imf-2016-05-24).

German Ifo business climate index came in slightly better than expected, a sign that domestic activity remains robust after official data confirmed that Germany's gross domestic product growth accelerated in the first quarter. (http://www.marketwatch.com/story/german-gdp-growth-picks-up-pace-in-first-quarter-2016-05-24)

The euro recently traded at $1.1161 late Wednesday, compared with $1.1140 late Tuesday.

"The news helped to arrest the euro decline which has been on a one way trip south ever since the FOMC minutes last week suggested that the Fed is ready to move on rates as early as June," said Boris Schlossberg, managing director of currency strategy at BK Asset Management.

The dollar strengthened against the yen, buying Yen110.11 late Wednesday, compared with Yen110.00 late Tuesday in New York.

Bank of Canada leaves rates on hold

The Canadian dollar rose against its U.S. rival Wednesday after the Bank of Canada left its benchmark interest rate unchanged at 0.5%. The bank also said in a news release that it expects the devastating Alberta wildfires have hampered economic growth in the second quarter, though it expects growth to rebound in the third.

The dollar fell to C$1.3035 late Wednesday, compared with C$1.3124 late Tuesday.

Read:These are the EU countries that would suffer after Brexit, says Fitch (http://www.marketwatch.com/story/ireland-belgium-malta-to-be-hit-hard-if-brexit-gets-green-light-says-fitch-2016-05-16)

Chinese yuan hits three-month low

Elsewhere, the People's Bank of China set its daily yuan-fixing at the weakest level against the U.S. dollar in more than five years (http://www.marketwatch.com/story/pboc-fixes-yuan-at-lowest-level-against-dollar-in-more-than-5-years-2016-05-25). The onshore yuan weakened to 6.5642 afterward, a three-month low.

 

(END) Dow Jones Newswires

May 25, 2016 15:25 ET (19:25 GMT)

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