Dollar holds near 2-week high after strong US retail data

The dollar hovered near a two-week high early on Monday, as strong US retail sales data tempered some of the fears about a sharp downturn in the world's largest economy.

That provided some relief to the dollar ahead of the Federal Reserve's policy meeting this week. While few expect the Fed to cut rates at Wednesday's policy review, traders are wagering that policy makers will do just that in coming months.

The dollar index versus a basket of six major currencies was little changed at 97.509 after rising to 97.583 on Friday, its highest since June 3.

The index had declined to a two and a half month low of 96.459 a little more than a week ago after a weak US jobs report heightened Fed rate cut prospects.

Expectations of an interest rate cut at the Fed's June 18-19 meeting fell from 28.3 per cent on Thursday to 21.7 per cent according to CME Group's FedWatch tool. But bets of an easing at the July meeting remain high at 85 per cent.

“In addition to the upbeat US data, the dollar is supported by weakness in other currencies, notably the euro and antipodeans,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“The Fed might cut rates sooner or later but so might its antipodean counterparts as well as the European Central Bank, and such views put the dollar at an advantage.”

With growth slowing and inflation staying well below the its target, the ECB recently raised the prospect of even more stimulus, arguing that a rate cut or even more asset purchases may become necessary.

The central banks of Australia and New Zealand face a similar predicament as the global economy braces for fallout from the US-China trade conflict. Australian bond yields slipped to a record low last week as investors priced in further easing by the Reserve Bank of Australia, which already cut rates to a record low 1.25 per cent earlier this month.

The euro was little changed at $1.1216 after shedding about 0.6 per cent on Friday, when it fell to an eight-day trough of $1.1203. The Australian dollar crawled up 0.1 per cent to $0.6878 but remained within reach of a five-month low of $0.6862 set on Friday, when the currency retreated nearly 0.7 per cent.

The New Zealand dollar, which slumped more than 1 per cent during the previous session, traded near a three-week low of $0.6488 brushed towards the end of last week. The dollar was flat at 108.570 yen after edging up 0.15 per cent on Friday.