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Dollar steady before retail sales, Fed minutes


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NEW YORK — The dollar was little changed

against a basket of currencies on Tuesday as investors waited on

U.S. retail sales and minutes from the Federal Reserve’s July

meeting on Wednesday.

The greenback has bounced from a six-week low last week as

investors ramp up bets that the U.S. central bank will continue

to hike rates aggressively as inflation remains persistently

high.

Trading has been choppy, however, with the Fed not due to

meet until Sept. 20-21 and with more consumer price inflation

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and jobs data due before then.

Looser financial conditions as benchmark 10-year Treasury

yields hold below 3% and as the credit and stocks markets

improve has increased speculation the Fed may need to be more

aggressive in tightening conditions to address rising price

pressures.

“Every rally in U.S. equities gives the Fed more leeway to

hike rates,” said Adam Button, chief currency analyst at

ForexLive in Toronto.

ING analyst Padhraic Garvey noted that financial conditions

were back to where they were in April, which was before the Fed

made a cumulative 200 basis points in rate hikes, leaving the

U.S. central bank almost back at square one.

“This must reverse. Else the Fed has no choice but to get

tougher,” Garvey, regional head of research, Americas at ING

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said in a note.

Investors will scour minutes from the Fed’s July meeting on

Wednesday for any new signals of how large a rate hike is likely

in September.

Fed funds futures traders are currently pricing in a 60%

chance of a 50 basis points increase and a 40% probability of a

75 basis points hike.

U.S. retail sales data on Wednesday will also offer new

insight into the state of the consumer. It is expected to show

that sales rose by 0.1% in July compared with June.

Data on Tuesday showed that U.S. homebuilding fell to the

lowest level in nearly 1-1/2 years in July, weighed down by

higher mortgage rates and prices for construction materials.

Industrial production, meanwhile, rose to an all-time high

in July.

The dollar index against a basket of currencies was up 0.02%

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on the day at 106.48.

The euro climbed back into positive territory, after

dropping earlier on data showing that German investor sentiment

fell slightly in August on concerns the rising cost of living

will hit private consumption.

Europe is struggling with an energy crisis after imposing

sanctions on Russia due to its invasion of Ukraine.

Germany secured a commitment on Tuesday from major gas

importers to keep two floating liquefied natural gas (LNG)

terminals fully supplied from this winter in a bid to cut

reliance on Russian fuel, as Moscow warned that sky-high gas

prices may jump again.

“The market is slowly pricing in a worse outcome this winter

in Europe and that’s the major reason the dollar’s stayed so

strong,” said Button. “While the U.S. outlook is deteriorating,

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it still looks better than Europe and much of Asia.”

The euro rose 0.10% against the dollar to $1.0169,

after earlier falling to $1.0121, the lowest since Aug. 3.

The greenback gained 0.69% against the yen to

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 cooler U.S.

inflation would mean a less aggressive pace of Fed tightening

and so lower U.S. yields.

However in recent days, several Fed policymakers have spoken

of the need for continued rate hikes.

The Australian dollar recovered from earlier losses to be

little changed on the day.

Minutes from the Reserve Bank of Australia’s (RBA) August

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policy meeting on Tuesday showed that Australia’s central bank

still sees a need for more rises in interest rates to prevent

high inflation becoming baked into the expectations, but is not

on a pre-set path and aims to keep the economy on an even keel.

The New Zealand dollar fell 0.34%, hurt by concerns about

global growth. New Zealand’s central bank is expected to deliver

its fourth straight half-point rate hike on Wednesday but that

appeared to have been priced into the currency already.

The greenback fell 0.43% against the Canadian dollar after

Canadian data showed still high underlying inflation pressures

and raised bets for a hefty rate hike by the Bank of Canada next

month.

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Currency bid prices at 3:00PM (1900 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 106.4800 106.4700 +0.02% 11.307% +106.9400 +106.3000

Euro/Dollar $1.0169 $1.0159 +0.10% -10.55% +$1.0195 +$1.0123

Dollar/Yen 134.2200 133.3200 +0.69% +16.61% +134.6750 +132.9500

Euro/Yen 136.48 135.44 +0.77% +4.73% +136.9100 +134.9500

Dollar/Swiss 0.9500 0.9465 +0.38% +4.15% +0.9513 +0.9455

Sterling/Dollar $1.2089 $1.2053 +0.31% -10.61% +$1.2117 +$1.2008

Dollar/Canadian 1.2847 1.2903 -0.43% +1.61% +1.2928 +1.2831

Aussie/Dollar $0.7022 $0.7022 +0.01% -3.40% +$0.7040 +$0.6992

Euro/Swiss 0.9659 0.9614 +0.47% -6.85% +0.9679 +0.9605

Euro/Sterling 0.8409 0.8425 -0.19% +0.13% +0.8440 +0.8406

NZ $0.6341 $0.6362 -0.34% -7.37% +$0.6370 +$0.6318

Dollar/Dollar

Dollar/Norway 9.6760 9.6920 -0.31% +9.67% +9.7465 +9.6570

Euro/Norway 9.8422 9.8657 -0.24% -1.69% +9.8818 +9.8286

Dollar/Sweden 10.3467 10.3310 +0.27% +14.74% +10.4058 +10.3260

Euro/Sweden 10.5218 10.4938 +0.27% +2.81% +10.5426 +10.5064

(Reporting by Karen Brettell; Additional reporting by Alun John

in Hong Kong; Editing by Susan Fenton and Alex Richardson)

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