By Peter Nurse

Investing.com – The dollar edged lower in early European trade Friday, but remained near a three-week high after strong U.S. economic data shifted tapering expectations ahead of next week’s Federal Reserve meeting.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.843, just below Thursday’s three-week high of 92.965.

rose 0.2% to 109.88, climbed 0.1% to 1.1772, bouncing off Thursday’s three-week low of 1.1750, while the risk sensitive rose 0.2% to 0.7307.

The dollar received a boost on Thursday after U.S. unexpectedly increased in August, rising 0.7% from the previous month despite expectations of a 0.8% fall. Markets had anticipated that the Covid-19 Delta variant would have severe consequences for consumption. This surprise came as a shock to markets. 

U.S. data Friday will focus on the University of Michigan’s report, which shocked many investors last month when it fell to a decade-low.

Traders are now fully focussed on next week’s Federal Reserve meeting amid uncertainty over whether this data will be enough to prompt the central bank to announce a timeline for asset tapering after a tame consumer inflation reading and soft job growth data earlier this month.

“It seems unlikely investors will want to build momentum behind any fresh trends in the dollar until the Sep 22nd FOMC event risk has passed,” said ING analysts, in a note.

Elsewhere, edged higher to 1.3794 despite U.K. falling unexpectedly for a fourth month, dropping 0.9% on the month in August and suggesting that a resurgence of coronavirus cases is taking a toll on confidence.

fell 0.1% to 6.4517 after the People’s Bank of China injected short-term funds into the banking system to try and soothe frayed nerves over the country’s real estate sector with all eyes on China Evergrande Group and its coupon payment due next week.