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Investing.com - The U.S. dollar edged lower in early European trade Tuesday, retreating from near three-month highs ahead of the release of a slew of key economic data this week.
At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.907, after slipping 0.2% on Monday.
Dollar slips ahead of data dump
Traders appear to have decided to book some gains at the start of a week that includes the release of several key economic data points, culminating on Friday with the widely-watched monthly employment report.
U.S. consumer confidence data are due later on Tuesday, while a revised reading on second-quarter gross domestic product is due on Wednesday. Readings on personal consumption expenditures, the Federal Reserve’s preferred inflation gauge, are due on Thursday, while August nonfarm payrolls are set to close out the week.
Any signs of resilience in the U.S. economy, particularly regarding inflation and employment, will provide the Fed with more impetus to keep raising interest rates.
Powell helps greenback with hawkish tone
That said, the dollar remains over 2% this month and is coming off a run of six straight weeks of gains as resilient U.S. economic data bolstered expectations that rates may stay higher for longer.
Fed chair Jerome Powell added to these expectations with his comments at the Jackson Hole symposium last week, suggesting further interest rate increases may be needed to cool still-too-high inflation.
“We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data," Powell stated.
The Fed next meets in September, and while it is not expected to raise rates then, expectations are rising that the U.S. central bank will raise interest rates in November.
Euro slips as German sentiment slips
EUR/USD fell 0.1% to 1.0811, with German consumer sentiment seen falling in September, as the GfK's consumer sentiment index fell to -25.5 from a slightly revised -24.6 in August, as persistently high inflation weighs.
"The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more," said GfK consumer expert Ralf Buerkl.
European Central Bank president Christine Lagarde on Friday called for higher-for-longer interest rates to achieve the central bank's key objective of bringing inflation back to its 2% target.
The August release of eurozone inflation is due later in the week, and the annual figure is expected to show a small drop to 5.1% from 5.3% in July, still well ahead of the central bank's 2% target.
Elsewhere, GBP/USD rose 0.1% to 1.2614, moving off two-month lows from last week, USD/JPY fell 0.1% to 146.44, close to a 10-month high, AUD/USD rose 0.2% to 0.6444, while USD/CNY traded flat at 7.2903.
