Dollar gains against peers with investors eyeing upcoming data

By Chibuike Oguh and Alun John

NEW YORK/LONDON, Jan 6 (Reuters) – The U.S. dollar gained against major peers on Tuesday, with the euro trading down following softer inflation data in Europe, but moves were fairly muted with investors focused on how upcoming data will shed light on U.S. monetary policy outlook.

The impact of the shock U.S. capture of Venezuelan President Nicolas Maduro over the weekend was short-lived across most asset classes and particularly in currencies. 

“The primary focus has been how the market would initially react to the Venezuela news with the potential for escalation and with more potential risks … but we are not seeing any risk-off sentiment in the marketplace and that’s encouraging because it seems it is being dealt with in an isolated environment,” said Amo Sahota, director at Klarity FX in San Francisco.

The dollar was up 0.49% to 0.795 against the Swiss franc and was up 0.14% to 156.6 against the Japanese yen.

“Before the holidays, we were in a data vacuum and were slowly playing catch-up on that and I think that’s where we are still. There’s a lot of uncertainty about what’s really happening in the U.S. jobs market. People want to see more evidence and they’re going to get a look at that this week starting tomorrow. We get the ADP report and job openings report. And then on Friday, we get the big jobs report as well,” Sahota said.

Markets are also digesting diverging commentaries by Federal Reserve officials on the path of interest rates this year.

Fed interest rate changes will need to be “finely tuned” to incoming data given risks to both the Fed’s unemployment and inflation goals, Richmond Fed president Tom Barkin said on Tuesday. Barkin is a non-voter on the Fed’s rate-setting committee this year.

Fed governor Stephen Miran, whose term ends at the end of January, said Tuesday the U.S. central bank needs to cut interest rates aggressively this year to keep the economy moving forward.

Minneapolis Federal Reserve President Neel Kashkari, a voter on the Fed’s rate-setting committee this year, told CNBC on Monday he sees a risk that the jobless rate could “pop” higher.

“On the fundamental side, we are waiting for what will happen with U.S. monetary policy, and as for now Venezuela is a non-factor,” said Adam Button, chief currency analyst at ForexLive.

Fed funds futures are still pricing around an 82% chance that interest rates will remain on hold at the U.S. central bank’s next meeting on January 27 to 28, according to the CME Group’s FedWatch tool.

The euro was last down 0.26% at $1.169, giving back early small gains after data showed inflation slowed more than expected in Germany and France in December.

That data sent European government bond yields down around 3 basis points, while Treasury yields were slightly higher on the day, a relative move that weighed on the common currency. [GVD/EUR]

Traders expect the European Central Bank to keep rates steady for all of this year, and if inflation continues to hold near its 2% target, it will have little reason to rush to hike.

The pound dropped in sympathy as traders thought British inflation data could follow a similar pattern, and was last down 0.27% at $1.3504, albeit after hitting a near four-month high against both the dollar and euro earlier in the day. [GBP/]

The dollar index, which measures the greenback against major currencies including the yen and the euro, rose 0.19% to 98.57.

The index dropped slightly on Monday after U.S. data showed manufacturing activity had contracted more than expected in December and fallen to a 14-month low.

Elsewhere, the Australian dollar, which is sensitive to global investor sentiment and often moves in line with stocks, has been outperforming, and hit an over one-year high of $0.6739 on Tuesday. It was last up  0.36% versus the greenback at $0.6737.

Against the Chinese yuan trading offshore in Hong Kong, the U.S. dollar was flat at 6.981 yuan. The New Zealand  kiwi weakened 0.1% versus the greenback to $0.5782.

(Reporting by Chibuike Oguh; Editing by Kate Mayberry, Ros Russell, Peter Graff and Nick Zieminski)