The US dollar index traded lower on Tuesday, stuck at levels reached this week as strong services data in the United States fueled expectations for higher interest rates than recently forecast.
The Australian currency rebounded from a one-week low after the Reserve Bank of Australia (RBA) raised rates for the eighth time in as many months. After recording its biggest gain in two weeks on Tuesday, the US dollar index which measures the currency against six major currencies slipped 0.18% to trade at 105.082.
It had slipped to 104.1 on Monday for the first time since June 28 before rising again after data showing U.S. services industry activity. unexpectedly rose in November, with employment rebounding.
"The longer the U.S. economy firm, more and more doubts are likely to rise over whether the U.S. will actually face a recession next year or the U.S. central bank. will really reduce its prime rate.” said Heger, FX Analyst at Commerzbank.
The Federal Open Market Committee decided on policy on Dec. 15. Traders currently expect a half-point rise to a base band of 4.25-4.5% and terminal rates just above 5% in May.
The Aussie dollar rose 0.46% to $0.6729, paring part of Monday's 1.4% fall as the RBA said it was not on track to tighten policy but inflation remained high.
The European currency has jumped up by 0.23% to trade at 1.0516. European Central Bank policymaker Constantinos Herodotou said on Tuesday interest rates would rise again but were now "closer" to their neutral level.
German industrial orders rebounded more than expected in October. The price cap for Russian offshore crude, which came into effect on Monday, may start to show its impact on energy markets soon, said Francesco Pesole, FX strategist at ING.
"When adding the expected temperature drop in Europe starting this week, the risk of new energy price increases cannot be ignored, and the euro is very vulnerable to such risks," he said.
For tomorrow, the market is focused on the BOC statement and overnight interest rate setting.
