SYDNEY Reuters -- The euro was huddled at a 16 month low on Tuesday, while the dollar was firm as traders waited for U.S retail sales data. Wary a strong reading could cause inflation and put pressure on the Federal Reserve to hike rates.
Currency moves were slightly ahead of any outcome from the discussion, and are likely to set the tone in financial markets during the Asia session, as are talks between U.S. President Joe Biden and Chinese counterpart Xi Jinping.
The yuan was steady at 6.3812 per dollar offshore.
Overnight, the euro had fallen below the $1.14 mark for the first time since July last year due to concerns about COVID 19 outbreaks and as Europe's central bank chief pushed back against the need to act to tame inflation.
The common currency climbed to $1.1361 after falling as far as $1.1356 on Monday, and the drop helped the U.S. dollar index to a 16 month high of 95.595. The dollar was broadly steady against the yen and was firm against the yen overnight.
It bought 114.14 yen last week, while the euro was near the one-month low of 129.64 yen it touched on Monday.
If we were to take any tighter measures now, it could cause more harm than it would do to European Central Bank President Christine Lagarde, who told European Union lawmakers, a contrast to hawkish hints from elsewhere.
"We expect the cautiousness of the ECB on policy to limit recovery prospects for the euro against the dollar in the coming months," said Jane Foley, senior FX strategist at Rabobank.
Our current mid- 2022 forecast of EURUSD at $1.14 is outdated and we will revise our forecast later in the week. The euro fell against the pound on its steepest slide against the pound in six months, as Bank of England Governor Andrew Bailey told a parliamentary committee he was very uneasy about inflation.
Canada's central bank chief Tiff Macklem said we are getting closer to rate hikes in a Financial Times opinion piece, driving the Canadian dollar to a four-and-a-half year high against the euro.
Ahead of U.S retail sales data due at 1330 GMT, Australia is in focus with Reserve Bank of Australia RBA Governor Philip Lowe making a speech on inflation.
After minutes from this month's meeting showed that the bank still expects it will keep rates at record lows until 2024, even though it acknowledged upside risks on inflation, the bank said it would not be a surprise.
The risks are tilted towards AUDUSD weakness because of the large gap between market pricing for rate hikes in 2022 and RBA rhetoric, said Joe Capurso, Commonwealth Bank of Australia analyst Joe Capurso.
The Aussie was last at $0.7346, just below its 50 day moving average of $0.7362. The kiwi is awaiting a Reserve Bank of New Zealand meeting next week and is steady at $0.7040. AUD The U.S. consumption data was a surprisingly weak consumer sentiment reading last week and an unexpectedly strong Empire State business conditions survey that had lifted Treasury yields overnight.
It is expected to show sales accelerating.
After last week's acceleration in the US CPI, we think the forecasts point to decent data, which could increase bets over a hike by the Fed as soon as the tapering process is over, said Charalambos Pissouros, head of research at JFD Group in Cyprus.