The euro fell against a choppy dollar on mounting rate hike bets

The US dollar edged higher by a few cents in early European trade Tuesday, continuing its huge gains from the previous session after strong US services data, while the euro fell despite positive German industrial production results.

A surprising rise in the non-manufacturing PMI published by the Institute for Supply Management on Monday boosted the dollar, suggesting that the country's dominant services sector remained resilient in November even as the Federal Reserve aggressively raised interest rates to combat high levels of inflation.

In the wake of stronger-than-expected job growth on Friday, questions have been raised as to whether the US central bank will keep raising its interest rates by 75 basis points for the fifth consecutive meeting next week when they see the economy has the potential to cope with more aggressive tightening to curb stubborn inflation.

Choppy dollar on a light trading day

As far as US economic data are concerned, Tuesday is a relatively quiet day and policymakers at the Federal Reserve are in their traditional blackout period as they prepare for their final policy meeting for 2022 next week. Accordingly, trading ranges could remain tight until Friday's US producer price inflation data is released, which is expected to provide clues about the central bank's hawkishness.

Better than expected German data couldn't save the euro

Despite German industrial orders rising 0.8% in October, instead of the 0.1% forecast, EUR/USD fell 0.1% to 1.0480, continuing the 0.5% overnight decline. A revision to September's figures also showed a drop in sales of only 2.9%, rather than the 4.0% reported originally. Even though the numbers are less steep than those predicted, there is still a possibility that orders will decrease quarter-on-quarter. Given the mixed fundamental backdrop, aggressive traders might want to be cautious before positioning for a firm intraday direction.

The likelihood of RBA rate hikes pushes up the AUD

The Australian dollar has recovered from near one-week lows after the Reserve Bank of Australia (RBA) raised interest rates for the eighth time in as many months. The Australian dollar rose 0.4 per cent to 0.6725 after the Reserve Bank of Australia raised interest rates by 25 basis points as widely expected. In addition, the Australian central bank's announcement that more rate hikes may occur helped the growth of the Australian dollar. The Reserve Bank of Australia has warned that inflation is slowing, which could prompt more rate hikes in the coming months.