Investing.com – The U.S. dollar edged higher on Wednesday, while the euro fell after disappointing euro zone activity data pointed to more interest rate cuts by the European Central Bank in the future.
At 05:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 104.232, extending its overnight recovery.
Dollar Looks to Political Uncertainty
The dollar benefited from the volatility surrounding the US political situation.
Vice President Kamala Harris has received strong support from the Democratic Party after President Joe Biden endorsed her as the presidential candidate, and a Reuters/Ipsos poll showed her with a slight lead over Republican nominee Donald Trump.
However, Trump remains the favorite to win the presidential election scheduled for next November.
“The dollar losses from the weaker June CPI report have now been erased across most USD pairs, with the yen, Swiss franc and sterling emerging as some of the major winners,” analysts at ING Bank said in a note.
“Looking down the foreign exchange scorecard, we feel that Trump’s trade is still very influential.”
However, Friday is due to see the release of US inflation figures for June, and the Fed’s preferred inflation gauge could quickly change foreign exchange market sentiment.
Euro falls after weak economic activity data
In Europe, the euro fell 0.2% to 1.0835, following the release of euro zone business activity data for July.
Eurozone business activity growth stalled in July, with the Office for National Statistics’ flash reading falling to 50.1 this month from 50.9 in June, just above the 50 mark that separates growth from contraction.
The US central bank left interest rates unchanged at 3.75% last week, but other signs of slowing regional growth point to more rate cuts this year.
Markets are pricing in the European Central Bank cutting interest rates about twice more during the rest of the year.
The pound was down 0.1% against the US dollar at 1.2898, retreating from the 1.30 level the pair hit last week for the first time in a year.
Data showed that British business activity rebounded this month, supported by the fastest growth in the manufacturing sector in two years and the strongest flow of new orders since April 2023.
The S&P Global Flash Index for July rose to 52.7 points, compared to a six-month low in June of 52.3 points.
Elsewhere, GBP/USD rose 0.1% to 1.3796, near a three-month low for the Canadian dollar ahead of a rate-setting meeting later in the session.
Markets are pricing in an 84% chance of a 25 basis point rate cut, which would be the Bank of Canada’s second cut in two months.
The yen goes from strength to strength.
In Asia, the dollar fell 0.5% to 154.81, with the pair falling to its lowest level since early June.
The yen’s gains extended a recovery from last week, when the currency strengthened sharply amid suspected government intervention in the currency market.
The yen also benefited from some positive PMI data, as an unexpected contraction in manufacturing activity was largely offset by a rebound in services activity.
All eyes are now on next week’s meeting, with recent inflation and PMI readings fuelling growing speculation that the central bank will raise interest rates by 10 basis points.
Sterling rose to 7.2773, close to its November high, as sentiment towards China remained bearish amid ongoing concerns about slowing economic growth in the country.
