The U.S. dollar traded near its highest in almost two weeks versus the yen before the release of data that is forecast to show the U.S. manufacturing sector returned to growth, which would ease concern about the impact of the ongoing Sino-U.S. trade war.
The euro teetered near its lowest in more than two years versus the greenback as weak economic data from Germany reinforced expectations that monetary policy in the euro zone will remain accommodative for an extended period.
The Australian dollar edged lower before an expected interest rate cut from the Reserve Bank of Australia (RBA) later on Tuesday.
A host of economic data and comments from central bankers this week will set the tone for major currencies as traders try to determine how far policymakers go to bolster growth.
“Economic data can be supportive of the dollar, and the Federal Reserve’s comments are not as dovish as some people think,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“An RBA rate cut and the risk of a stagnant European economy both should be positive for the greenback.”
The dollar traded at 107.85 yen early in Asia, close to its strongest level in almost two weeks.
The yen remained weak after the Bank of Japan’s tankan showed business confidence in the third quarter slid to its lowest in six years.
Trading could be subdued in Asian time because China’s financial markets are closed until Monday for public holidays.
The Institute for Supply Management’s measure of U.S. manufacturing activity due later on Tuesday is forecast to show a return to expansion in September, but just barely.
In August U.S. manufacturing activity contracted for the first time in three years due to the U.S.-China trade war.
Several Fed policymakers are scheduled to speak this week, but traders said they will focus most on comments from Fed Chairman Jerome Powell on Friday for hints about the direction of U.S. monetary policy.
The Fed has cut interest rates twice this year, but there are signs that the Fed is reluctant to ease policy further because the jobs market remains strong.
The euro stood at $1.0900 (EUR=EBS) in Asia, nursing a 0.4% decline in the previous session when it slid to $1.0885, which is the lowest since May 12, 2017.
Annual inflation in Germany, Europe’s largest economy, slowed to the lowest in almost three years, data on Monday showed.
The European Central Bank unleashed a new round of monetary easing measures on Sept. 12, but there is growing concern that the central bank is reaching the limits of what it can achieve and the burden will fall to eurozone governments to boost fiscal spending.
The Australian dollar fetched $0.6751 , down 0.02% in early trade.
Australia’s central bank is all but certain to cut its cash rate to a record low of 0.75% on Tuesday and will likely ease again in early 2020 to boost inflation and support a stuttering economy, a Reuters poll showed.
The New Zealand dollar traded at $0.6264 , which is within striking distance of a four-year low. The kiwi has taken a hit as weakening business confidence bolstered expectations for monetary easing.