Investing.com – The U.S. dollar edged higher Tuesday after retreating further from last week’s one-year high during the previous session, as traders look for political guidance. 

At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 106.427, after falling 0.4% in the previous session. 

The index climbed 1.6% over last week, marking six weeks of gains in the last seven, and reaching its highest level in a year.

Treasury Secretary debate 

The foreign exchange markets are seeing some consolidation at the moment after a volatile few weeks, with the near 7% appreciation in the in just six weeks being one of the sharpest adjustments since the summer of 2022. 

“Positioning is probably the biggest threat to the dollar right now,” said analysts at ING, in a note, “although we may also start to hear of dollar seasonality again where DXY [dollar index] has fallen in eight of the last 10 Decembers and for the last seven consecutive Decembers.”

With the US data slate largely empty this week, the focus appears to be turning towards President-elect Donald Trump’s selections for his cabinet.

“One of the most relevant positions for financial markets is the post of US Treasury Secretary,” said ING. “A candidate with proven reliability will be well-received by the bond markets, while those with less experience – or perhaps a candidate that will offer less of a counterweight to some of President-elect Trump’s plans – could see the long end of the US Treasury market sell-off and perhaps even soften the dollar too.”

Euro hit by tariff fears

In Europe, traded 0.6% lower to 1.0535, not far removed from last week’s one-week low after European Central Bank officials expressed concerns over the damage that expected new U.S. trade tariffs would do to economic growth in the eurozone.

“The balance of macro-risks has shifted from concerns about high inflation to fears over economic growth,” ECB Vice-President told an event in Frankfurt on Monday.

“The growth outlook is clouded by uncertainty about economic policies and the geopolitical landscape, both in the euro area and globally. Trade tensions could rise further, increasing the risk of tail events materialising.”

The final reading for October has confirmed that inflation is currently at the ECB’s 2.0% target, while quarterly growth for the region was just 0.4%.

fell 0.4% to 1.2626, ahead of the release of UK data for October on Wednesday.

Economists expect the annual rate of inflation to have risen 2.2%, which would be an increase from 1.7% in September, the first time the annual rate of inflation dropped below the BoE’s 2% target in more than three years.

Also of note is the testimony from Bank of England Governor in front of lawmakers later Tuesday. He is sure to be asked about the likely impact on inflation of the new Labour government’s recently released budget. 

Japanese inflation data due

fell 0.6% to 153.78, with the yen rebounding after hitting near four-month lows hit earlier in November.

Japanese data is due this Friday and is set to offer more insight into interest rates in the country. The reading also comes after largely underwhelming gross domestic product data for the third quarter, which sparked questions over just how much headroom the Bank of Japan has to raise interest rates further.

climbed 0.1% to 7.2434, remaining in sight of recent three-month highs. 

Focus this week is on an interest rate decision by the , although economists expect the central bank to leave its loan prime rate unchanged on Wednesday.

Investing.com– Most Asian currencies firmed slightly on Tuesday, while the dollar retreated further from recent one-year highs amid persistent bets that the Federal Reserve will cut interest rates in December. 

Regional markets were also bracing for more economic cues from China and Japan this week, as well as a swathe of purchasing managers index readings from major economies. 

Most Asian currencies were nursing steep losses through the past week, as strong U.S. inflation readings and less dovish statements from the Federal Reserve sparked some uncertainty over just how much interest rates will fall in the coming months. 

Donald Trump’s election win also saw traders pile en masse into the dollar, putting the greenback at a one-year high.

But the and fell 0.1% each on Tuesday, retreating further from recent peaks as markets held on to bets that rates will fall in the short-term.

Traders were seen pricing in a 59.8% chance for a 25 basis point cut in December, and a 40.2% chance rates will remain unchanged, showed.

This notion offered some relief to Asian markets, although the longer term outlook for rates still remained uncertain, especially in the face of a Trump presidency. 

Chinese yuan muted as LPR decision looms 

The Chinese yuan moved little on Tuesday, with the pair remaining in sight of recent three-month highs. 

Focus this week is on an interest rate decision by the People’s Bank of China, although economists expect the central bank to leave its unchanged on Wednesday.

The PBOC had cut the rate in October by slightly more than expected, as it moved to further loosen monetary conditions and support local economic growth. Wednesday’s decision also comes after a slew of underwhelming stimulus measures from China, while recent economic readings showed little improvement. 

Japanese yen fragile ahead of CPI data

The Japanese yen firmed slightly on Tuesday with the pair falling 0.4%. But the pair remained in sight of near four-month lows hit earlier in November, as a spike in the dollar dented the yen.

Japanese data is due this Friday and is set to offer more insight into interest rates in the country. The reading also comes after largely underwhelming data for the third quarter, which sparked questions over just how much headroom the Bank of Japan has to raise interest rates further.

Broader Asian currencies moved in a flat-to-low range. The Australian dollar’s pair rose 0.2%, as the of the Reserve Bank of Australia’s recent meeting reiterated the central bank’s plans to keep interest rates unchanged in the near-term.

The Singapore dollar’s pair was flat, as was the South Korean won’s pair.

The Indian rupee’s pair was flat after hitting a series of record highs of over 84.6 rupees earlier in November, and remained in sight of those peaks.