Dollar retreats with markets focused on US data, shrugging off Venezuela

By Chibuike Oguh and Amanda Cooper

NEW YORK/LONDON, Jan 5 (Reuters) – The dollar retreated from a near four-week high against major currencies on Monday as traders turned their focus to a raft of key U.S. economic data this week for clues on the monetary policy outlook.

Markets are largely shrugging off events in Venezuela, after a U.S. raid led to the capture of President Nicolas Maduro and his wife, Cilia Flores.

The closely watched U.S. monthly employment report, due on Friday, will be key in shaping expectations for the outlook for monetary policy – an arguably weightier factor for the dollar. 

The dollar pared gains and was down 0.16% against the Swiss franc at 0.79135 francs. The euro rebounded from losses in early trade and was up 0.05% at $1.17265 against the dollar.

“The dollar fell against major currencies in December but it really bottomed around Christmas and so I think we are going to have an upside correction of the dollar ahead of the jobs data on Friday,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

U.S. manufacturing activity contracted more than expected in December, extending its slump to 10 straight months. The Institute for Supply Management said on Monday that new orders fell again and input costs kept grinding higher as the sector continues to bear the imprint of Trump’s import tariffs.

“I think between Friday’s jobs data, next week’s CPI, industrial production and retail sales, it will just drive home the message that the U.S. economy is not deteriorating further and the Federal Reserve will be on hold through Q1,” Chandler said.

The dollar index hit its highest since December 10 but eased and was last down 0.3% at 98.262. The dollar index lost 1.2% in December, its weakest performance since August.

Traders currently expect two U.S. rate cuts this year, according to LSEG calculations based on futures.

Maduro pleaded not guilty in a New York federal court on Monday to four criminal counts: narco-terrorism, cocaine importation conspiracy and possession of machine guns and destructive devices. Flores also pleaded not guilty.

The implications for the dollar from the U.S. action in Venezuela will partly depend on whether the mission is successful, Macquarie analysts led by Thierry Wizman said in an investor note.

“A cursory examination of the real value of the USD over several decades suggests that a stronger USD is associated with ‘successful’U.S. engagement abroad,” the analysts said.

LOWER US RATES AHEAD

Investors are also awaiting Trump’s choice for the next Fed chair, with Jerome Powell’s term ending in May. Trump has said he would announce his pick this month, and that Powell’s successor would be “someone who believes in lower interest rates, by a lot”.

Meanwhile, Bank of Japan Governor Kazuo Ueda said on Monday that the BOJ would continue to raise rates if economic and price developments moved in line with its forecasts. 

It is a view he has reiterated several times in recent months, including after December’s as-expected decision to raise rates to a three-decade high.

The dollar was down 0.37% against the yen at 156.190. It was down 0.31% against the Australian dollar at $0.6714 and down 0.35% versus the New Zealand kiwi at $0.5789.

(Reporting by Chibuike Oguh in New York; Additional reporting by Kevin Buckland in Tokyo; Editing by Mark Heinrich and Lisa Shumaker)