Investing.com – The U.S. dollar fell in early European trade on Friday, but was still on track for its biggest weekly rise in more than a month as expectations of early interest rate cuts from the Federal Reserve faded.
At 04:40 EDT (08:40 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 104.910, but was on track for a 0.6% gain this week. It is his greatest height. A one-week rise since mid-April.
The dollar was boosted by lower interest rate cut expectations
US business activity accelerated to the highest level in just over two years in May, data released on Thursday showed, dampening expectations of US interest rate cuts and rising government bond yields.
This followed a Fed meeting in late April that showed policymakers were increasingly concerned about persistent inflation, adding weight to comments from many officials calling for caution about easing monetary policy.
The CME Fedwatch tool showed that traders were pricing in an almost equal probability of a cut and a hold – about 46% – in September, after previous forecasts showed a more than 50% chance of a cut.
The next data release will likely be the Fed's preferred measure of inflation, which is scheduled for May 31.
This is likely to give the next hints as to whether the ECB is in a position to start cutting interest rates later this year.
The pound sterling declines after weak retail sales in the United Kingdom
In Europe, the index fell to 1.2696, after data showed that the British index fell more than expected in April, falling 2.3% on the month, as wet weather kept shoppers away from clothing retailers and sports stores.
“Markets expect just 33 basis points of easing by the end of the year and less than 10 basis points for the August meeting. “We still expect an August cut, and view any views on postponing easing due to the UK vote in… “It is not replaced.”
The index traded up 0.1% to 1.0821, after growing by 0.2% in the first three months of 2024, the statistics office said on Friday, confirming preliminary data.
“After a decline in GDP at the end of 2023, the German economy started 2024 with positive growth,” said Ruth Brand, head of the Statistical Office.
“Given the risk of higher inflation rates in the Eurozone and markets that have shown a tendency to look on the brighter side of US price dynamics recently, the coming days could renew some bullish sentiment on the EUR/USD pair,” ING said. To 1.0900 is more likely than a decline to 1.0700 in the near term.”
The bank is widely expected to begin its interest rate cutting cycle next month.
The yen is rising near a three-week high
In Asia, it rose 0.1% to 157.07, with the pair rising to its highest level in more than three weeks, continuing its recovery from the lows reached in the wake of government intervention seen earlier in May.
The yen received little relief from CPI data that showed inflation falling as expected in April, as spending remained weak.
It traded 0.1% higher at 7.2448, near a six-month high, with further weakness in the yuan capped by a much stronger mid-term reform from the People's Bank of China.
The stronger reform came amid the simmering trade war with the United States, doubts about further stimulus measures and rising tensions with Taiwan, leading to a wave of yuan selling pressure.
