The U.S. dollar rose in early European trading on Tuesday, bouncing off recent lows, while the Australian dollar slumped after the RBA hinted at the end of its rate hike cycle.
As of 03:25 ET (08:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 105.285, above Monday’s near two-month low of 104.84.
Dollar Climbs on Hawkish Fed Talk
The Dollar Index slumped 1.3% last week, its biggest drop since mid-July, after the Federal Reserve sent dovish signals about the likelihood of more interest rate hikes this year.
That tone changed, however, after Federal Reserve Bank of Minneapolis President Neel Kashkari hinted at the need for more rate hikes to control inflation.
“The economy has proven to be really resilient, even though we’ve raised rates a lot over the last couple of years. That’s good news,” Kashkari said in an interview Monday.
But he added: “We haven’t completely solved the inflation problem. We have more work to do to get it done.”
The Fed left its target for short-term interest rates unchanged last week at between 5.25% and 5.5%.
Fed Chairman Jerome Powell is scheduled to speak on Wednesday and Thursday, and traders will be looking to see if he supports this more hawkish stance.
Euro Falls on Weak German Industrial Production
The EUR/USD fell 0.1% to 1.0701 after German industrial production fell more than expected in September, dropping 1.4% from the previous month.
This adds to growing signs that the Eurozone’s largest economy is struggling and is likely to end the year in a technical recession.
The European Central Bank must remain vigilant on inflation and be ready to raise interest rates again if needed, its policymaker Robert Holzmann said on Monday after the central bank halted its tightening cycle in late October.
However, Holzmann, the governor of Austria’s central bank, is at the hawkish end of the ECB policymaker spectrum, and the majority of his colleagues may not share these views given the region’s slowing growth.
The GBP/USD was down 0.2% at 1.2321 after hitting a seven-week high of 1.2428 on Monday.
UK food inflation fell below 10% for the first time since July 2022, according to data from market researcher Kantar, providing some relief to consumers ahead of the key Christmas shopping period.
Aussie Dollar Slumps After RBA Meeting
AUD/USD fell 0.9% to 0.6429 after the Reserve Bank of Australia hiked interest rates to a 12-year high as widely expected, but changed its language on the outlook by softening its forward guidance.
Traders perceived the change as dovish and began betting that the central bank was done with its hiking cycle, putting the Aussie on track for its biggest one-day percentage decline in a month.
Chinese Exports Disappoint in October
USD/CNY rose 0.2% to 7.2847 as data showed that China’s exports shrank more than expected in October, while the country’s trade surplus narrowed to its smallest in 17 months.
While imports unexpectedly rose, the weakness in exports signaled deteriorating demand in the country’s biggest export destinations in the West.
The USD/JPY rose 0.3% to 150.45, once again weakening above the key 150 level on the back of the dollar’s strength.
