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Investing.com – The U.S. dollar edged higher in early European trading on Tuesday ahead of this week's key economic data that could provide clues about the U.S. Federal Reserve's next move.
As of 4 a.m. ET (9 a.m. Japan time), the dollar was trading 0.1% higher at 101.125 against a basket of six other currencies, a five-month low after the dollar fell about 2% in 2023. recovered slightly from. .
Employment statistics that affect dollar sentiment
Rising expectations that the Fed will start cutting interest rates in 2024 have hit the dollar hard, with traders pricing in a more than 70% chance of a 25 basis point cut in March 2024.
But until the March meeting, the market still has a barrage of key economic indicators to contend with.
U.S. economic data due later on Tuesday is expected to show the key sector remains in contraction territory, with data from the Fed's last meeting in December set to be released on Thursday.
But most attention will be on Friday's December data. This is expected to show the number of jobs created in the final month of 2023 fell to 163,000 from just under 200,000 in the previous month. This slowdown in the labor market is widely expected to be factored into monetary policy.
Euro rebounds from 5-month high
In Europe, the index traded 0.1% lower at 1.1031, down from last week's five-month high of 1.1139, after manufacturing PMI data confirmed the sector is firmly entrenched in contractionary territory across the region.
The currency rose 3% last year, marking its first annual gain since 2020.
The pound rose 0.2% last year to £1.2751, marking its best performance since 2017 with a 5% rise.
However, data released early on Tuesday showed UK food prices fell to 6.7% in December from 7.7% the previous month, the lowest level since June 2022.
This raises expectations for interest rate cuts to begin in 2024, which is likely to weigh on the pound.
Yen depreciates due to major earthquake that hit Japan
Elsewhere, Japan traded 0.5% higher at 141.55, even as Japanese markets were closed for a week-long holiday after a devastating earthquake in the Chubu region hit sentiment. .
It traded 0.5% higher at 7.1346 as official data showed further deterioration in manufacturing activity.
Although the sector showed some strength, employment and inflation failed to recover significantly and growth remained largely moderate. The statistics show that there are few signs of recovery in China's economic activity at the end of 2023.
