German inflation is at its highest level in almost 50 years and a growing number of European Central Bank officials are calling for significant rate hikes. Markets believe there is a better chance of a 75 basis point rate hike next week.
The euro rose 0.16% to $1.0003 in early Asian trading, which if held would mark a third session of gains in a row. Eurozone inflation data is due 0900 GMT.
The US dollar index, which measures the greenback against a basket of currencies, hovered at 108.71, just below a two-decade high of 109.48 hit on Monday as the dollar gained on the pound, the Aussie and the kiwi overnight.
The yen, down, stabilized at 138.56 per dollar.
Inquiries into Chinese activity scheduled for 0130 GMT will be closely watched in the Asian session and could weigh on the yuan and commodity currencies in the region – such as the Australian dollar – if the data is disappointing.
Another month of contraction in manufacturing is expected in August, with a reading of 49.2 expected, slightly higher than July’s reading of 49.0.
“I think recent data, particularly the industrial earnings release this weekend, points to the risk of a more severe downside surprise,” said Rodrigo Catril, currency strategist at National Australia Bank in Sydney.
The Australian and New Zealand dollars suffered losses, but both stabilized in early trade to place the Aussie at $0.6861 and the Kiwi at $0.6139. [AUD/]
The yuan was under pressure at 6.9211 per dollar in offshore trading.
Data released overnight shows U.S. job openings rose by 199,000 to 11.239 million in July, indicating continued strong demand for labor and boding strong data results more general on employment scheduled for Friday.
New York Fed Chief John Williams told the Wall Bourse Journal that it will be “some time” before interest rates are cut, while Atlanta Fed President Raphael Bostic said: “I don’t think we’re done tightening rates.”
Traders are pricing a 69% chance of a 75bp hike in the federal funds rate next month.
The pound gained 0.1% to $1.1666 in early trade, after hitting a fresh 2.5-year low of $1.1622 overnight.