The dollar pared some gains following the data, which showed retail sales increased 0.3% last month, but demand for goods is cooling as the U.S. Federal Reserve raises interest rates. The dollar has been supported by the view that the Fed will keep tightening policy aggressively.
The prospect of another Russian gas supply cut knocked the euro lower on Tuesday, while dollar gains were tempered by mounting uncertainty over the U.S. Federal Reserve's policy-tightening path after this week's expected interest rate rise. European Union countries were preparing to approve an emergency proposal to curb gas demand, the prospect of which sent the single currency and German bond yields lower and hit German shares. "It's becoming a more mainstream view that the price to pay for supporting Ukraine against Russia will be gas rationing," said Rabobank senior strategist Lyn Graham-Taylor.
The U.S. dollar edged lower in early European trade Tuesday, moving close to a one-week low, as traders eased expectations that the U.S. Federal Reserve will hike by a full percentage point this month. The dollar has been gradually retreating from its multi-year high as expectations of a super-sized tightening by the Fed at the end of July have been reined in, especially after two of the most hawkish FOMC members – James Bullard and Chris Waller – said that their base case was still a 75 basis point move. “We doubt that between now and the 27 July FOMC meeting, markets will seriously reconsider a 100bp increase; first, because the Committee has entered its blackout period, and there are therefore no speakers until next week and second, because the U.S .data flow is set to be mostly second-tier this week,” said analysts at ING, in a note.