The US dollar index or DXY continued its bullish consolidation in a narrow range around 104.00 in Asian session trading on Tuesday (21/February), it still near six-week highs.
Major currency pairs showed a mixed performance. Meanwhile, market participants looked forward to a number of interest rate announcements and the publication of important economic data this week.
The United States labor and inflation data outperforming expectations have scrapped market estimates for the Fed's interest rates this year. It restored the U.S. dollar's rally since early February.
The greenback briefly corrected yesterday in light of the closure of the American exchanges amid President's Day celebrations. However, that rose again cautiously today.
Two Major Pairs are Weakened Slightly
The AUD/USD and NZD/USD weakened slightly in a limited range at the time of writing. USD/CAD consolidated its gains in the 1.3460s. USD/JPY stuck out around 0.3 percent.
Meanwhile, the EUR/USD was hit at 1.0657. Only Sterling is ahead by about 0.5 percent against the USD thanks to the release of UK economic data that exceeded expectations.
Subsequent market participants will look forward to more high-impact non-US data releases. This is an essential release that will become a consideration for some parties.
After the Purchasing Managers' Index (PMI) report for several European countries in today's European session, there is also the publication of Canadian inflation data later in the evening.
German Inflation Data will Have an Impact on Euro
Next, USD may face the S&P Global version especially for the US PMI version. However, this data is usually considered less accurate than the ISM version of the US PMI.
New Zealand's interest rate announcement will kick off the Wednesday's Asian session. Next, German inflation data and the IFO index could have a major impact on the euro.
The US dollar is in danger of coming under pressure if non-US data exceeds market estimates. That is due to the absence of catalysts from within the country until the release of the FOMC minutes in the New York session tomorrow.
Kit Juckes, a Societe Generale strategist, thinks there are two reasons why the United States dollar's rally is hampered in EUR/USD. That must be revealed and known by all market participants.
50 bps Increase may be Needed
First, the US and European growth projections converge. Second, the gap between United States and European interest rate expectations narrows
The euro/dollar's inability to continue to decline after breaking below $1.0650 on Friday summarizes the overall condition of the FX market for Juckes when he was met on an occasion.
He thought that a significant further strengthening of the dollar will require the Fed Funds Futures market to start accounting for a 50 bps rate hike in March.
Further more, the Fed Funds Futures currently provide only a 16% chance for a 50 bps "rate hike" scenario in March. On the other hand, the European Central Bank (ECB) almost certainly raised interest rates by 50 bps at its policy meeting on March 16.
Gold Experienced a Slight Decline
These expectations propped up EUR/USD's position above the 1.0600 threshold, although the bearish trend suppressed it since the beginning of the month.
Elsewhere, Gold was seen registering a slight decline at the close of trading on Tuesday (21/February). The decline in safe haven assets was caused by the prospect of another Fed rate hike.
Moreover, investors are currently anticipating the FOMC minutes which will be released in the early hours of tomorrow. The slipping USD provided little support for this precious metal.
That is especially to continue its recovery. The Dollar Index was traded around 103.75 in a flat condition. Analysts assess that the USD is adjusting to market conditions that again expect a Fed rate hike.
