Dollar Holds Firm as Rate Cut Expectations Faded

The dollar holds firm against the euro and the yen as expectations for a Fed interest rate cut within the year faded. The market expects upbeat numbers from US retail sales and consumer prices reports due this week. The greenback hovers near a major resistance at 122 against the yen, while stays around a 2 ½ -month peak against the euro.

Tomorrow will see UK employment report, US retail sales report and US business inventories index. US retail sales are estimated to reverse previous month’s decline and grow 0.6% in May. Excluding automobiles, core index is forecasted to increase 0.7%.

The losses in the euro maybe limited by expectations that the European Central Bank may lift interest rates twice in the rest of the year. ECB President Trichet said yesterday that borrowing costs are low enough to support economic expansion, signaling further rate hikes.