The dollar edged lower in early European trade Friday, but remained near a three-week high after strong U.S. economic data shifted tapering expectations ahead of next week’s Federal Reserve meeting.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.843, just below Thursday's three-week high of 92.965.
The dollar received a boost on Thursday after U.S. retail sales unexpectedly increased in August, rising 0.7% from the previous month despite expectations of a 0.8% fall. This came as a surprise as markets had expected the Covid-19 delta variant to have severely hit consumption.
U.S. economic data Friday centers around the release of University of Michigan's consumer sentiment index, which surprised many investors last month by tumbling to a decade-low.
Traders are now fully focussed on next week’s Federal Reserve meeting amid uncertainty over whether this data will be enough to prompt the central bank to announce a timeline for asset tapering after a tame consumer inflation reading and soft job growth data earlier this month.
“It seems unlikely investors will want to build momentum behind any fresh trends in the dollar until the Sep 22nd FOMC event risk has passed,” said ING analysts, in a note.
Elsewhere, GBP/USD edged higher to 1.3794 despite U.K. retail sales falling unexpectedly for a fourth month, dropping 0.9% on the month in August and suggesting that a resurgence of coronavirus cases is taking a toll on confidence.
USD/CNY fell 0.1% to 6.4517 after the People’s Bank of China injected short-term funds into the banking system to try and soothe frayed nerves over the country's real estate sector with all eyes on China Evergrande Group and its coupon payment due next week.