The US dollar index (DXY) trades with mild gains to around 106.90 in Tuesday’s early European session as markets await key US Retail Sales data and the Federal Reserve’s policy decision later this week.
The Federal Reserve (Fed) is widely expected to cut interest rates by 25 basis points during its two-day meeting ending Wednesday, potentially marking its third rate cut this year. According to the CME FedWatch Tool, markets are now pricing in a 95.4% chance of a quarter-point cut, up from 78% just a week ago. Traders will focus on Fed Chair Jerome Powell’s press conference and the central bank’s Summary of Economic Projections for further clues on the direction of monetary policy. Any hawkish commentary from the Fed could provide renewed support to the US dollar.
In other data, the US economy showed resilience as the S&P Global US Composite PMI climbed to 56.6 in December—its highest in 33 months—from 54.9 in November. While the Services PMI surged to 58.5, beating market expectations of 55.7, the Manufacturing PMI fell to 48.3, signaling weakness in the sector and undershooting a forecasted 49.4.
Later on Tuesday, US Retail Sales for November will take center stage. Should sales figures surprise on the downside, it could weigh on the US dollar amid speculation of softer economic momentum as the Fed considers its next move.
