Investing.com – The dollar traded modestly higher against a basket of major currencies on upbeat manufacturing data but gains were capped as investor concerns over a continued slowdown in inflation weighed on sentiment.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.10% to 93.01.
The dollar traded sideways as early session optimism on the back of upbeat manufacturing data faded amid investor concerns over disinflation following Friday’s inflation report.
The Federal Reserve Bank of New York says that its Empire State manufacturing index rose to 30.2 in October, after reaching 24.4 the previous month. Any reading below zero points to contraction.
The Labor Department said on Friday its Consumer Price Index rose 0.5% last month after advancing 0.4% in August. That missed economists forecast of a 0.6%.
The subdued inflation data failed, however, to deter investor expectations for a year-end rate hike after Fed chair Janet Yellen on Sunday reaffirmed the Federal Reserve’s commitment to raising rates.
“The U.S economy remains strong and the strength of the labor market calls for continued gradual increases in interest rates,” Yellen said.
According to investing.com’s fed rate monitor, 85% of traders expect the Federal Reserve to hike interest rates at its meeting later this year in December.
The steady expectations for a year-end interest rate hike prompted money managers to trim their bets on the dollar falling as data showed that net short position on the greenback fell for the second week in a row.
Net short dollar positions against six major currencies fell to $15.4 billion from $16.8 billion the week before, data from the CTFC showed on Friday.
Euro weakness, meanwhile, added to dollar strength, amid an uptick in political tension in the region after the Spanish government said Catalan authorities must end a bid for independence by Thursday.
EUR/USD fell 0.10% to $1.1810 while EUR/GBP rose fell 0.08% to £0.8891.
GBP/USD traded roughly flat at $1.3284 while USD/JPY fell 0.02% Y111.79.
USD/CAD tacked on 0.44% to C$1.2523 after data showed foreign investors slowed their acquisition of Canadian securities in August.
International investors bought C$9.85 billion in August, down from C$23.97 billion in July.