Investing.com – The U.S. dollar strengthened Tuesday ahead of key retail sales data and speeches by Federal Reserve officials as investors sought clues to better gauge the timing and pace of interest rate cuts.
At 04:20 ET (08:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 105.125, but still below Friday’s 1.5-month high of 105.80. .
Dollar trading is volatile
The U.S. currency was volatile last week, helped by cooling inflation readings, but was then supported by the Federal Reserve, which confined the number of cuts expected for this year to just one from three in March.
As investors try to determine when the Federal Reserve will start cutting interest rates, they will be watching May retail sales data, which will be released later in the session.
Economists expect growth of 0.3% after being unexpectedly stable in April.
Speeches by several Fed officials throughout the week will also be compelling.
The Philadelphia Fed president indicated Monday that investors should probably expect only one rate cut this year.
“If everything turns out as expected, I think one rate cut would be appropriate by the end of the year,” Harker said, after presenting his view that he sees slowing, but above-trend economic growth and a moderate boost in the unemployment rate, and “a long slippage back to the inflation target as a base case.
Euro stabilizes after politically inspired losses
fell 0.1% to 1.0724, with the euro stabilizing to some extent after keen losses last week in the wake of political turmoil following the rise of far-right parties in the European Parliament elections and the announcement of early elections in France.
“The swings in option positioning and the undervaluation of EUR/USD suggest that if markets were to reduce the political risk premium, there would be significant room for the pair to recover,” ING analysts said in a note.
“However, we doubt whether this can happen before the first round of parliamentary voting in France on June 30, and the euro should lag behind in terms of negative dynamics against the dollar.”
The final May reading for the euro zone will be released later in the session and the annual figure is expected to be confirmed at 2.6%, up from 2.4% the previous month.
fell 0.2% to 1.2679 ahead of the release of the UK May CPI on Wednesday and the Bank of England’s policy meeting the following day.
The bank’s interest rate is expected to fall to its 2% target for the first time in almost three years, but core inflation is expected to remain above 3%.
It is likely to leave interest rates unchanged, with markets currently pricing in about a 40% chance of a quarter-point move in August and a 70% chance in September.
Australia stable after RBA keeps interest rates on hold
In Asia, shares rose 0.3% to 158.16, with the yen still feeble after rates were kept unchanged last week. It said it would only give clear signals about its plans to start tapering bond purchases at its July meeting.
quotes were unchanged at 7.2561 while falling slightly to 0.6611, unfazed by the Reserve Bank of Australia’s expectation that rates would remain unchanged on Tuesday.
