By Peter Nurse
Investing.com - The U.S. dollar edged higher in early European trade Tuesday, continuing the previous session’s hefty gains after strong U.S. services data, while the euro slipped even as German industrial production numbers impressed.
At 02:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 105.312, after Monday's 0.7% rally, its biggest since Nov. 21.
The dollar rallied on Monday as the Institute for Supply Management's non-manufacturing PMI unexpectedly rose, suggesting the country’s dominant services sector remained resilient in November even as the Federal Reserve aggressively hiked interest rates to tackle inflation at historic highs.
This followed stronger than expected jobs creation on Friday, and raised concerns that the U.S. central bank will be given license to continue with its interest rate increases of 75 basis points for the fifth consecutive meeting next week.
The dollar had slumped 1.3% last week after a speech from Federal Reserve Chair Jerome Powell signaled a downshift in the pace of rate hikes, while risk sentiment was given a boost by signs that the Chinese authorities were loosening their tight COVID mobility restrictions.
The U.S. economic data slate is quiet Tuesday and Federal Reserve policymakers are in their traditional blackout period ahead of their final policy meeting for 2022 next week. So trading ranges could be tight until Friday’s U.S. producer price inflation data for clues about how hawkish the central bank may be.
EUR/USD fell 0.1% to 1.0480, continuing the 0.5% overnight drop despite German industrial orders rising 0.8% on the month in October, rather than the 0.1% forecast. September's figures were also revised to show a drop of only 2.9%, rather than the 4.0% originally reported.
The figures still leave orders on course for a decline in quarter-on-quarter terms, albeit a less steep one than feared.
GBP/USD rose 0.1% to 1.2194, rebounding after Monday's 0.9% retreat, while USD/JPY rose 0.3% to 137.19.
AUD/USD rose 0.4% to 0.6725 after the Reserve Bank of Australia hiked interest rates by 25 basis points, as widely expected, but also flagged the potential for more rate hikes.
The bank warned that Australian inflation was far from cooling, which is likely to necessitate more rate hikes in the coming months.
USD/CNY rose 0.5% to 6.9951, approaching the closely watched 7-per-dollar level, with traders still awaiting a nationwide easing of its strict zero-COVID policy.
The focus this week will be on Chinese trade data, on Wednesday, to gauge how the economy held up through increased COVID restrictions in the past month.