Dollar retreats from two-decade highs ahead of German CPI and US JoLTs

An energized euro battered the dollar on Tuesday after it fell from a two-decade high versus major peers. European nations' inflation figures and Friday's US non-farm payrolls will be of interest to the upcoming economic data. The reason behind this is that investors try to figure out whether the central bank is able to handle an economic slowdown without the economy entering into a recession.

On Wednesday, the Eurozone is due to release its CPI figures for August, which are expected to show an increase in annual inflation to 9.0% from 8.9% in July, well above the ECB's 2% target.

Despite mounting recession risks, the data will likely increase pressure on the ECB to raise rates aggressively at its upcoming September meeting.

Traders began betting on a supersized 75-basis-point interest rate hike by the European Central Bank while paring the odds on one by the Fed.

There are better than 50% odds that the ECB will raise interest rates by 75 basis points this year after a parade of ECB speakers at the Fed's annual symposium in Jackson Hole backed up the decision. By comparison, bets for a 75 bps increase by the Fed on Sept. 21, which is still higher at 70%, have fallen from 75% on Monday.

In contrast, Chinese officials said on Tuesday that they are stepping up measures to boost demand and stabilize employment and prices in the second half of this year in order to optimize economic outcomes as policymakers attempt to prop up faltering growth.

Earlier last week, China's cabinet announced a package of new economic stimulus measures, including billions of dollars worth of policy financing, that were expected to boost the economy.

While most of the rest of the world has been tightening monetary policies, the Chinese government is attempting to boost their country's economy.

Events of the day

One of the most important data on Tuesday is the German Consumer Price Index (CPI), which is expected to slow down from a 0.9% monthly increase in June to a 0.3% increase in July.

For the remainder of the session, market participants will likely be closely monitoring US data for home price data from the FHFA, consumer confidence data from the Conference Board, and the July JOLTS job openings report.