Dollar steady ahead of data deluge; euro undervalued

Investing.com - The U.S. dollar traded in a steady manner Tuesday, awaiting the release of a plethora of economic numbers for clues towards the likelihood of the Federal Reserve easing interest rates next month. 

At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 100.072. 

Dollar awaits data deluge

Fed Governor Christopher Waller on Monday said the job market is weak enough to warrant another quarter-point rate cut in December, echoing comments made by New York Fed President John Williams late last week.

These dovish comments have moved rate cut expectations, with traders now pricing in an 81% chance of a cut next month versus 42% a week earlier, CME FedWatch showed.

That said, the minutes from the last Federal Reserve meeting indicated that the policymakers remain divided, putting the flood of impending data delayed by the government shutdown firmly in focus.

Prints on producer price inflation and retail sales for September are due later in the session, while PCE price index data – the Fed’s preferred inflation gauge – is due on Wednesday. 

These numbers will be the most recent economic readings the Fed has before heading into the December meeting, with government officials signaling that inflation and labor data for October will likely never be released due to the prolonged shutdown. 

“Markets are back to pricing in 19bp of easing for December, but the dollar has remained resilient,” said analysts at ING, in a note. “Some year-end rebalancing flows before Thanksgiving may be getting in the way, but unless markets have a hawkish rethink, the dollar looks too strong relative to short-term rate differentials at these levels, and we see some material downside risks.”

Euro undervalued versus dollar - ING

In Europe, EUR/USD edged 0.1% higher to 1.1529, after recording small gains overnight.

That said, data showed that the German economy stagnated in the third quarter of 2025 compared with the previous quarter, confirming the preliminary reading.

This follows the November’s Ifo data, released on Monday, which showed that the country’s businesses have downscaled their previous optimism, suggesting a tricky final quarter of 2025.

“The EUR is yet to see any real benefit from the Ukraine peace talks, and is trading at a wide 2% undervaluation vs USD as of this morning,” said ING.

GBP/USD edged 0.1% higher to 1.3114, with a degree of nervousness building ahead of Wednesday’s budget announcement.

Finance minister Rachel Reeves is expected to have to raise taxes in order to meet the government;s fiscal targets, but she will be reluctant to dampen the country’s faltering growth.

Yen remains on intervention watch 

In Asia, USD/JPY slipped 0.1% to 156.62, with the Japanese currency remaining squarely in territory that has drawn government intervention in the past.

Japanese government officials have offered warnings against further yen weakness, but the government has not been seen intervening in the currency markets so far.

“Thinner liquidity around Thanksgiving could present good conditions for the BoJ to intervene in USD/JPY, ideally after a market-driven correction in the pair,” said ING. “U.S. data might potentially offer the trigger for that correction, but not today in our view.”

USD/CNY traded 0.1% lower to 7.0949, with the Chinese yuan firming slightly on the prospect of improving U.S.-China relations. U.S. President Donald Trump said he will visit Beijing in April. 

AUD/USD slipped 0.1% to 0.6455, while NZD/USD fell 0.2% to 0.5599 ahead of the latest rate decision by the Reserve Bank of New Zealand later in the session.