The dollar got off to a subdued start on Monday, having recovered a bit of ground late last week after upbeat payrolls data bolstered the case for an imminent hike in U.S. interest rates. To be sure, the greenback's reaction was modest with a Fed hike at the Dec. 15-16 meeting already considered highly likely. The focus has shifted to how gradual the tightening cycle will be following the initial move.
Investors were forced to unwind bearish euro positions after the European Central Bank (ECB) stopped well short of delivering the aggressive easing that the market was expecting. ECB President Mario Draghi said on Friday he was confident the measures, which included a small deposit rate cut and an extension of its asset purchase program, would bring inflation back to the ECB's target. He was quick to add that the bank was ready to ease policy further if needed.
Yet comments by other ECB rate setters suggested there was not enough support on the governing council for bolder action. All in all, the vicious short-covering rally in the euro last week was a blow to euro bears and could discourage them from re-establishing short positions anytime soon.
Traders said the hurdle is high for anyone to take big risks with the year-end looming and activity would probably wind down sharply after next week's Fed policy review. Against the yen, both the dollar and euro were steady. The greenback fetched 123.20, while the euro bought 134.01 .The euro had rallied nearly 3 percent on the yen last week.
This week, the focus will switch to an avalanche of Chinese data which are expected to show a sluggish economy. Trade figures are due on Tuesday, followed by inflation on Wednesday, and industrial output and retail sales on Saturday.