Investing.com – The US dollar edged higher on Tuesday after retreating further from last week’s one-year high in the previous session, as traders looked for political guidance.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 106.427, after falling 0.4% in the previous session .
The index climbed 1.6% last week, marking six weeks of gains in the past seven weeks and hitting its highest level in a year.
Debate about the Minister of Finance
Currency markets are currently seeing some consolidation after a volatile few weeks, with the appreciation of almost 7% in just six weeks being one of the sharpest adjustments since summer 2022.
“Positioning is probably the biggest threat to the dollar right now,” ING analysts said in a note, “although we may also hear about dollar seasonality again, where DXY [dollar index] has fallen in eight of the last ten Decembers and for the last seven consecutive Decembers.”
With US data largely blank this week, the focus appears to be shifting to newly elected President Donald Trump’s selections for his Cabinet.
“One of the most relevant positions for the financial markets is the position of US Treasury Secretary,” ING said. “A candidate with proven reliability will be well received by the bond markets, while those with less experience – or perhaps a candidate who will be less of a counterbalance to some of President-elect Trump’s plans – could see the long end of the US. Sell-off in the government bond market and perhaps even a softening of the dollar.”
Euro hit by tariff fears
In Europe, trading traded 0.6% lower at 1.0535, not far from last week’s lows after European Central Bank officials expressed concerns about the damage expected new US trade tariffs would do to the economy growth in the eurozone.
“The balance of macro risks has shifted from concerns about high inflation to fears about economic growth,” the ECB vice president told a meeting in Frankfurt on Monday.
“Growth prospects are clouded by uncertainty about economic policies and the geopolitical landscape, both in the eurozone and globally. Trade tensions may further escalate, increasing the risk of tail events.”
The final figures for October have confirmed that inflation is currently at the ECB’s 2.0% target, while quarterly growth for the region was just 0.4%.
fell 0.4% to 1.2626, ahead of the release of UK figures for October on Wednesday.
Economists expect annual inflation to have risen by 2.2%, which would be up from 1.7% in September, the first time in more than three years that annual inflation has fallen below the target BoE of 2% fell.
Also of note is the Bank of England governor’s testimony to lawmakers later Tuesday. He will no doubt be asked about the likely impact on inflation of the new Labor government’s recently released budget.
Japanese inflation data released
fell 0.6% to 153.78, with the yen recovering after nearing a four-month low earlier in November.
Japanese data are due out this Friday and are expected to provide more insight into interest rates in the country. The figures also come after largely disappointing third-quarter gross domestic product data, which raised questions about how much room the Bank of Japan has to raise rates further.
rose 0.1% to 7.2434, staying within sight of recent three-month highs.
The focus this week is on an interest rate decision from the US central bank, although economists expect the central bank to leave its prime rate for loans unchanged on Wednesday.
