By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar edged higher on Monday in thin summer trading, with its potential upside limited by expectations the Federal Reserve will cut interest rates at next week's policy meeting.
Investors expect the Fed to reduce its key rate by 25 basis points and make another cut in September.
"A 25-basis-point cut is fully priced into the market but there is currently a 20% chance of a 50-basis-point cut, which is weighing on the dollar," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
"The data this week could be key in tilting the probabilities of future rate cuts or a 50-basis-point cut this July," he added.
U.S. retail sales and industrial production data are due on Tuesday, while the Fed will release its key Beige Book on U.S. economic conditions on Wednesday.
Foreign exchange markets were quiet overall on Monday and volatility low ahead of major central bank policy decisions next week. The European Central Bank also holds a meeting next week, with investors expecting a dovish statement.
Money markets have priced in an ECB rate cut of 10 basis points in September and another one in March. The ECB's meeting on July 25 may reinforce those expectations.
Forecasts for dovish moves by both the Fed and ECB have kept euro/dollar stuck in a narrow range for weeks.
In afternoon trading, an index that tracks the dollar against a basket of six other major currencies <.DXY> was up 0.2% at 96.956.
The dollar was flat versus the yen at 107.91
Investors are more bearish on the euro, since U.S. Treasury yields look set to remain among the highest in developed markets despite future Fed rate cuts, analysts say.
In the cryptocurrency market, bitcoin rallied from two-week lows to $10,941
U.S. Treasury Secretary Steve Mnuchin on Monday voiced serious concern that Facebook Inc's
He added that cryptocurrencies will be discussed at the upcoming Group of Seven meeting.
Edward Moya, senior market analyst at OANDA in New York, said despite Mnuchin's concerns, bitcoin held its gains because the U.S. Treasury's top official did not unveil new regulatory action that could severely hinder the development of cryptocurrencies.
Elsewhere, the Australian dollar, the currency most sensitive to Chinese news, rose to a more than one-week high on stronger-than-expected economic data from China. China's industrial output rebounded in June from a 17-year low in May, while June retail sales surged 9.8% from a year earlier.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Olga Kotaga in London; Editing by Alistair Bell)