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Investing.com – The U.S. dollar rose in early European trade Tuesday, rebounding after slipping from its 3-week high overnight, while weak German economic data weighed on the euro.

At 03:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 102.067, after falling from three-week highs in the prior session, as uncertainty over rate cuts in 2024 spurred some profit-taking. 

Dollar off three-week high after dovish Fedspeak

The dollar posted gains of around 1% last week as doubts started to emerge over whether the Federal Reserve will begin cutting interest rates as early as the first quarter of 2024.

However, it drifted lower on Monday following relatively dovish Fedspeak, with Governor calling monetary policy “sufficiently restrictive” and Atlanta Fed President repeating his view that rate cuts are likely this year.

Additionally, the New York Fed’s latest Survey of Consumer Expectations showed that U.S. consumers’ projection of inflation over the short run fell to the lowest level in nearly three years in December.

Thursday’s U.S. remains the week’s key focus, as it is likely to determine future expectations of the Fed’s interest rate moves.

Euro dips on weak German economic data

In Europe, traded 0.1% lower at 1.0945, after data showed that unexpectedly fell by 0.7% in November on a month-on-month basis, marking the sixth monthly decline in a row.

The European Central Bank has tried to make the case for keeping interest rates at record highs for some time, but is likely to come under pressure to ease monetary policy given the weakness of the German economy, Europe’s biggest. 

jumped to 2.9% in December from 2.4% in November, data showed on Friday. But this was widely expected, and growth in the region remains difficult to find.

fell 0.1% to 1.2733, with traders looking ahead to Friday’s release of GDP data for November for further guidance.

Japanese inflation drops

Elsewhere, traded 0.1% lower to 144.09, after data showed inflation in fell closer to the Bank of Japan’s 2% annual target range in December. The BOJ has signaled that it will begin tightening its ultra-dovish policy only after the 2% target is achieved.

rose 0.1% to 7.1595, as sentiment towards China remained weak.  due this Friday is expected to show a continued deflationary trend in the country, while trade data is likely to show sustained weakness in its export engines.