FOREX-Dollar steady before retail sales, Fed minutes

BY Reuters | ECONOMIC | 08/16/22 03:25 PM EDT
    (Adds quotes, data, economic outlook; updates prices)
    * Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

    By Karen Brettell
    NEW YORK, Aug 16 (Reuters) - 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
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
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%
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,
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
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.

    ========================================================
    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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