Investing.com – The US dollar fell on Monday, holding on after rising to an eight-week high last week, while the euro rose despite weak German business sentiment.
At 05:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 105.235, after reaching a high of 105.91 last week.
The dollar looks to personal consumption expenditures data for guidance
The US currency received a boost last week after stronger-than-expected readings, with a resilient US economy potentially creating more room for the Federal Reserve to keep interest rates high.
Traders have made some of these gains at the start of the new week, as focus turns to the release of price index data.
Fed officials have called for more data showing inflation slowing before agreeing to cut interest rates, and Friday’s reading of the Fed’s preferred gauge of inflation will likely take interest rate expectations into account.
Economists expect annual growth in the index to slow to 2.6% in May. The weak reading is likely to boost bets on a rate cut as early as September, which futures are currently priced as a 65% probability, according to the CME FedWatch tool.
Euro rebounds despite decline in Ifo reading
The index rose 0.2% to 1.0718, rebounding from recent losses despite German business sentiment unexpectedly falling in June.
The Ifo institute said the reading fell to 88.6 in June from 89.3 in May, compared to expectations for a reading of 89.7.
“The German economy is having difficulty overcoming the recession,” Ifo President Clemens Fuest said.
The single currency fell more than 1% this month after the right-winger performed well in European Parliament elections earlier in June, leading French President Emmanuel Macron to call for early elections.
It rose 0.1% to 1.2659, with the pound holding steady after falling near a five-week low in the wake of the Bank of England’s latest comments.
The Bank of England kept interest rates unchanged, but some policymakers said the decision not to cut was “well balanced,” raising expectations that policymakers will agree to a cut when they next meet at the beginning of August.
“Markets remain hesitant about the August move (14 basis points rate) and in our view, also remain very conservative on total easing this year of 47 basis points versus our expectation of 75 basis points,” analysts at ING said in a note.
“Our dovish view on the Bank of England means a bearish call for the pound this summer. We could also see some negative spillovers for sterling from the UK election (4 July), where Labor is largely expected to win in a landslide – but perhaps a good result from The Reform UK party’s hardline populist Brexit push has created some market jitters.
The yen goes down, marking the latest intervention
In Asia, the pair traded 0.1% lower at 159.68, retreating after the pair rose to a high of 159.94 in early trading on Monday, its highest level since April 29, when it reached a 34-year high of 160.245, leading The Japanese authorities spent approximately 9.8 trillion yen on supporting the currency.
The yen’s recent weakness has sparked warnings from several senior Japanese officials about further intervention, with the country’s chief currency diplomat Masato Kanda saying the government “will intervene 24 hours a day if necessary.”
The dollar rose to 7.2618, trading in a very narrow range as the yuan approached its lowest levels in seven months, affected by concerns about weakness in the world’s second-largest economy.
