Euro falls as traders await U.S. consumer test

On Tuesday, the Euro is at a 16-month low. In the meantime, the dollar was steady while traders awaited U.S. retail sales data. A strong reading might add pressure on the Fed to increase rates and stoke inflation.

During the Asia session, talks between U.S. President Joe Biden and his Chinese counterpart Xi Jinping might also set the tone in financial markets.

The yuan remained at 6.3813 per dollar offshore.

Overnight the Euro went below $1.15 for the first time since the beginning of last year in the middle of concerns about the coronavirus outbreaks. Europe’s central bank chief pushed it back to overcome inflation.

The common currency remained steady at $1.1362 after falling as far as $1.1357 on Monday. The drop supported the U.S. dollar index to reach a 16-month high of 95.596. The dollar also seemed steady against the yen overnight and broadly stable in general.

It last bought 114.15 yen while the Euro remained near the one-month low of 129.65 yen from this Monday.

Overview

Christine Lagarde, the European Central Bank President, told European Union lawmakers that if they need to take any measures now, it could cause much more harm than good.

Jane Foley, the Rabobank senior FX strategist, said that they expect the ECB’s cautious policy to restrict the Euro’s recovery prospects against the dollar in the following months.

She said that their current mid-2022 estimate of EUR/USD at $1.15 seems outdated. She added that they would be updating their forecasts later this week.

Tiff Macklem, Canada’s central bank chief, seemed even more direct. He said they would soon rate hikes in a Financial Times opinion piece, pushing the Canadian dollar to an almost five-year high against the Euro. Before the U.S. retail sales data, Australia focuses on Philip Lowe, Reserve Bank of Australia Governor, giving a speech on inflation. This month’s meeting showed that the bank still expects to put rates on hold at record lows until the beginning of 2024, even though it admitted upside risks on inflation.

Joe Capurso, Commonwealth Bank of Australia analyst, said that the risks are shifted today towards AUD/USD weakness as well as the large gap between market pricing for rate hikes in RBA rhetoric and 2022.

The Aussie was at $0.7347, below its 50-day moving average of $0.7363. In the meantime, the kiwi is expecting a Reserve Bank of New Zealand meeting while being steady at $0.7041.

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