The timing of US interest rate cuts is causing some controversy in global markets, after the sudden increase in US consumer prices in December, and the strong labor data, which proved the resilience of the world's largest economy.

Such economic flexibility could push the Fed to maintain current tight interest rates unchanged for an extended duration.  

Indeed, several Fed officials said it's still too early to talk about interest rates soon.

They said upcoming data will help determine the likely path ahead for policies, as they haven't seen enough evidence to cut interest rates yet. 

The odds of a March interest rate cut fell to below 50% on Friday according to CME data. 

San Francisco Fed President Mary Dale said the US economy and monetary policies are in a good position, and it's too early to talk about rate cuts. 

She added there's still weak evidence of inflation threading down, with the labor sector continuing to firm, removing the need for policy easing. 

Atlanta Fed President Raphael Bostic said he doesn't expect a rate cut before the third quarter.

However, he said on Friday he's open to changing his outlook according to fresh data, but he needs to see clear evidence that inflation is heading towards 2%. 

Official Fed's outlook points to three rate cuts in 2024, amounting to 75 basis points. 

Chicago Fed President Austan Goolsbey said that any changes in policies will fully depend on data showing a clear path to 2% inflation. 

The Federal Reserve is now preparing to convene on January 30-31, fully expected to maintain interest rates unchanged. 

Euro rose in European trade on Monday against a basket of major rivals, extending its recovery for the second day off five-week lows against the dollar ahead of the ECB meeting later this week. 

Following recent bullish remarks by ECB policymakers, markets now rule out an early ECB interest rate cut in the first quarter of this year. 

 Dollar lost ground as well as US treasury yields tapered off, with traders awaiting more clues on the likely path ahead for Fed interest rates. 

EUR/USD

EUR/USD rose 0.2% to 1.0909 with a session-low at 1.0886, after rising 0.2% on Friday, the second profit in three days away from five-week-lows at $1.0844. 

As for last week, the pain lost 0.5%, the second weekly loss in three weeks as concerns grew again about the US-Euro zone interest rate gap.

ECB

The European Central Bank is meeting this week to discuss policies and economic developments, expected to maintain interest rates flat for the third meeting in a row. 

Several ECB officials opposed the idea of early interest rate cuts starting next May as inflation and wages continue to present risks. 

ECB President Christine Lagarde said at the Davos Economic Forum that euro zone interest rates could be cut in the summer and not spring. 

Dr Joachim Nagel, President of the Deutsche Bundesbank, Member of the Governing Council of the European Central Bank, said it's still too early to talk about rate cuts as inflation remains too high. 

Robert Holzmann, Governor of Austria's Central Bank, said that Middle East geopolitical tensions and shipping disruptions in the Red Sea constitute a big inflation threat. 

The Dollar

The dollar index fell over 0.1% on Monday, extending losses for another session and moving off five-week highs at 103.69 against a basket of major rivals. 

US treasury yields declined for another session ahead of more important data this week, which will provide fresh pricing for the likelihood of early Fed rate cuts at the March meeting.

The US consumer confidence index rallied to July 2021 highs according to a preliminary reading for January.

Michigan data showed the index up 13.1% m/m to 78.8 in January from 69.7 in the previous month. 

Most US stock indices rose on Friday as the tech sector rebounded while markets await the results of major corporations in the field.

Investors are optimistic about the US economy achieving a soft landing as inflation is reined in without falling into a recession.

On trading, Dow Jones rose 0.3%, or 94 points as of 15:44 GMT to 37,562, while S&P 500 rose 0.3%, or 15 points to 4,796, as NASDAQ added 0.5%, or 74 points to 15,130.