Dollar Steady on Tuesday as Expectations for Higher Rate Hike

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Tuesday saw a little decline in the US dollar index (DXY), but it continued to trade close to levels reached earlier this week as a result of positive US services data that raised expectations for higher interest rates than had previously been anticipated.

Meanwhile, following the Reserve Bank of Australia’s (RBA) eighth-time increase in as many months, the Australian dollar recovered from recent lows of almost one week.

Dollar Index Still Struggling

The US dollar index, which compares the greenback to six other major currencies, had experienced its greatest gain in two weeks on Monday but was down 0.1% at 105.05 in the North American session on Tuesday.

On Monday, it dropped below 104.1 for the first time since June 28. Later, after data revealed that US services industry activity unexpectedly increased in November, with jobs rebounding, it changed course.

On December 15, the Federal Open Market Committee will decide on its policy decisions. The current consensus among traders is for a half-point increase to a policy band of 4.25–4.5% and a terminal rate of a little over 5% in May.

In Australia, the RBA stated that it was not on a predetermined course to tighten policy but that inflation remained high, with the Australian dollar (AUD) increasing by 0.46% to $0.6729, recouping some of Monday’s 1.4% decline.

Also, the euro (EUR) made modest gains versus the dollar, rising 0.2% to $1.0517 on Tuesday after reaching its highest level since late June on Monday.

According to Constantinos Herodotou, a policymaker for the European Central Bank (ECB), interest rates will increase once more but are currently “very near” their neutral level.

In October, German industrial orders improved more than anticipated. However, the euro was not instantly strengthened by that.