Dollar stable ahead of retail sales, Fed minutes

NEW YORK, Aug 16 (Reuters) – The dollar was little changed against a basket of currencies on Tuesday as investors awaited U.S. retail sales and July Federal Reserve meeting minutes on Wednesday.

The greenback rebounded from a six-week low last week as investors ramp up bets that the US central bank will continue to hike rates aggressively as inflation remains consistently high.

Trade was choppy, however, with the Fed not expected to meet until September 20-21 and with more data on consumer price inflation and employment expected before then.

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Looser financial conditions as benchmark 10-year Treasury yields hold below 3% and credit and equity markets improve have increased speculation the Fed may need to be more aggressive in tightening conditions to deal with growing price pressures.

“Each rally in US stocks gives the Fed more leeway to raise rates,” said Adam Button, chief currency analyst at ForexLive in Toronto.

ING analyst Padhraic Garvey noted that financial conditions had returned to where they were in April, which was before the Fed made cumulative rate hikes of 200 basis points, leaving the US central bank almost back to square one.

“It has to be reversed. Otherwise, the Fed has no choice but to get tough,” Garvey, regional research manager, Americas at ING, said in a note.

Investors will scour the minutes of the Fed’s July meeting on Wednesday for further signals on the likely size of a rate hike in September.

Fed funds futures traders are currently pricing in a 60% chance of a 50 basis point hike and a 40% chance of a 75 basis point hike.

U.S. retail sales data on Wednesday will also offer new insight into the state of the consumer. It should show that sales rose 0.1% in July compared to June. (USRSL=ECI)

Data on Tuesday showed U.S. residential construction fell to its lowest level in nearly a year and a half in July, weighed down by rising mortgage rates and building material prices.

Industrial production, meanwhile, hit a record high in July. Read more

The dollar index against a basket of currencies was up 0.02% on the day at 106.48.

The euro climbed back into positive territory, after falling earlier on data showing that German investor sentiment dipped slightly in August on fears that the rising cost of living could hurt private consumption. Read more

Europe is in the grip of an energy crisis after imposing sanctions on Russia over its invasion of Ukraine.

Germany on Tuesday secured a commitment from major gas importers to keep two floating liquefied natural gas (LNG) terminals fully supplied from this winter in a bid to reduce dependence on Russian fuel, as Moscow warned that exorbitant gas prices could rise again. Read more

“The market is slowly pricing in a worse result this winter in Europe and that’s the main reason the dollar has remained so strong,” Button said. “While the US outlook is deteriorating, it still looks better than Europe and much of Asia.”

The euro rose 0.10% against the dollar to $1.0169, having earlier fallen to $1.0121, the lowest since Aug. 3.

The greenback gained 0.69% against the yen at 134.22 yen.

The Japanese currency, which is often affected by the difference between benchmark yields in the United States and Japan, rallied last week on expectations that lower US inflation would mean a less aggressive pace of tightening. of the Fed and therefore a drop in US yields.

However, in recent days, several Fed policymakers have been talking about the need for continued rate hikes.

The Aussie dollar rebounded from earlier losses for being little changed during the day.

Minutes from the Reserve Bank of Australia’s (RBA) August policy meeting showed on Tuesday that Australia’s central bank still sees the need for further interest rate hikes to prevent the High inflation only settles into expectations, but is not on a predefined path and aims to keep the economy in balance.

The New Zealand dollar fell 0.34%, hurt by concerns over global growth. New Zealand’s central bank is set to deliver its fourth consecutive half-point rate hike on Wednesday, but that already appears to have been priced into the currency. Read more

The greenback fell 0.43% against the Canadian dollar after Canadian data showed underlying inflationary pressures still elevated and raised bets for a big rate hike by the Bank of Canada next month. Read more

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Bid rates for currencies at 3:00 p.m. (1900 GMT)

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Reporting by Karen Brettell; Additional reporting by Alun John in Hong Kong; Editing by Susan Fenton and Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

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