Dollar marginally higher as traders brace for data deluge; yen extends surge

The U.S. dollar was largely unchanged on Tuesday, but remained near one-week lows ahead of the release of a slate of key economic data, while sterling slipped lower with Prime Minister Keir Starmer under political pressure.

At 12:50 ET (17:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 96.82, levels last seen at the end of January.

Dollar awaits data deluge 

The U.S. currency has traded in a tight range Tuesday, after retail sales data for December came in unchanged. This will be followed by January nonfarm payrolls data on Wednesday, and consumer price index inflation data on Friday. 

The prints will be closely watched for more cues on interest rates, with markets already uncertain over the future path of U.S. monetary policy after President Donald Trump nominated Kevin Warsh as the next Fed chair, replacing Jerome Powell.

Warsh was initially viewed as a less dovish pick than some of the alternatives – a notion that sparked a sharp rebound in the dollar.

Although the greenback is flat on Tuesday, there have been concerns that Wednesday’ payrolls could be disappointing after Kevin Hassett, the chair of the National Economic Council, suggested that the market should ’not panic’ over lower jobs numbers.

“DXY [the dollar index] could well be in the middle of a new 96.50-97.50 range for the next few days and will probably take its cue from labor market releases,” said analysts at ING, in a note.

Sterling slips on political strife  

In Europe, GBP/USD traded 0.3% lower to 1.3654, weakening after the previous session’s gains as investors weighed the crisis facing Prime Minister Keir Starmer and rising wagers of further rate cuts.

Starmer battles for his future amid continued controversy over the appointment of Peter Mandelson as ambassador to the United States.

Anas Sarwar, leader of the Scottish Labour Party, called on Monday for the prime minister to resign, which Starmer declined to do, because of the appointment of Peter Mandelson as ambassador to the United States, a man whose close ties to the late U.S. sex offender Jeffrey Epstein have come into full focus.

Should Starmer, and/or Rachel Reeves, be replaced as Prime Minister and Chancellor, gilt yields initially rise and the pound weakens, according to Ruth Gregory, Deputy Chief UK Economist at Capital Markets.

However, “the most likely longer-lasting influence is a loosening in fiscal policy that leads to higher gilt yields than otherwise and a weaker pound than otherwise.”

EUR/USD was down 0.2% at 1.1895, after a hefty 0.9% jump on Monday. 

“It is not clear whether we should be chasing it higher from current levels just above 1.1900. Buy-side dollar hedging activities are hard to time, and it will probably take a surprisingly soft U.S. NFP report tomorrow to launch an attack on 1.20. In terms of short-term levels, 1.1920/25 is the trigger for 1.1960,” said ING.