Investing.com – The US dollar slipped lower Monday, but remained close to a three-week high ahead of the last Federal Reserve policy meeting of the year, while the euro weakened after regional economic activity data.
At 05:35 ET (10:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 106.580, after rising close to a three-week high on Friday.
Dollar hands back some gains
The dollar has handed back some of its recent gains as traders position for the US central bank to cut interest rates on Wednesday, with the Fed widely expected to cut its target policy band by 25bp to 4.25-4.50%.
“More interest will be had in how the Federal Reserve prepares to explain skipping its meeting in January. New Fed forecasts should also reduce the number of expected rate cuts in 2025 to three from four. This is all currently priced by the market, but there seems little reason for the Fed to dovishly surprise this week and we see the dollar staying supported,” said analysts at ING, in a note.
Euro slips after PMIs
In Europe, EUR/USD slipped marginally lower to 1.0499, after the release of data showing eurozone business activity eased again this month, although there was some sign of economic progress.
HCOB’s preliminary composite eurozone Purchasing Managers’ Index, compiled by S&P Global, rose to 49.5 in December from November’s 48.3 but was still shy of the 50 mark separating growth from contraction.
The bloc’s dominant services industry actually bounced back to growth, largely offsetting a long-running contraction in the manufacturing industry.
There are a variety of European Central Bank speakers, due to speak this session, in the wake of the central bank cutting interest rates once more last week, including ECB President Christine Lagarde, Pierre Wunsch and Isabel Schnabel.
“The latter two come more from the hawkish side and there could be upside risks to EUR/USD if they push back against expectations for sub-neutral monetary policy rates,” ING added.
GBP/USD traded 0.3% higher to 1.2652, bouncing after the previous week’s losses after data showed that the UK economy surprisingly contracted in October.
The Bank of England holds its latest policy meeting on Thursday, and is expected to cut interest rates by 25 bps even with its gradual approach to easing.
Yuan suffers from economic weakness
In Asia, USD/CNY rose 0.2% to 7.2899, hovering near a two-year high after the release of more disappointing economic data.
Chinese industrial production grew as expected in November as recent stimulus measures from Beijing supported business activity.
China’s home prices experienced a marginal decline in November, marking the slowest drop in 17 months, while retail sales for November were much lower compared to forecasts, reflecting ongoing weakness in consumer spending despite policy support.
USD/JPY gained 0.1% to 153.70, as Reuters reported the Bank of Japan was likely to keep interest rates unchanged this week, in contrast to earlier expectations of a hike.