Written by Brigid Riley
TOKYO (Reuters) – The dollar rose on Monday as the euro hovered near the lowest level in more than a month amid political turmoil in Europe, while investors awaited new signs of the strength of the U.S. economy.
Investors are weighing the risk of a budget crisis in the heart of the euro zone, where far-right and left-wing parties are gaining momentum ahead of snap parliamentary elections in France, putting pressure on President Emmanuel Macron's centrist administration.
Even after French financial markets suffered a brutal sell-off late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters.
The euro fell 0.04% to $1.07025, after falling to its lowest levels since May 1 at $1.06678 on Friday. The currency also recorded its largest weekly decline since April at 0.88% last week.
Although political turmoil is a bearish story for the euro, “since the euro accounts for about 57% of the weight, the euro's decline indirectly benefits the dollar,” said Matt Simpson, chief market analyst at City Index.
The index, which measures the greenback against a basket of similar currencies, was unchanged at 105.54, after touching its highest level since May 2 at 105.80 on Friday.
Minneapolis Federal Reserve Bank President Neel Kashkari said on Sunday that a “reasonable prediction” is that the US central bank will cut interest rates once this year and wait until December to do so.
The Federal Reserve published updated forecasts last week that showed the average expectation from all 19 US central bankers was for one interest rate cut this year.
This week will be light on key US economic data to help clarify the Fed's outlook, although Tuesday's US retail sales and Friday's flash PMIs may give hints about consumption and economic strength.
“The data is likely to miss estimates by a large margin to revive bets on further Fed cuts, with the FOMC meeting still on investors' minds,” City Index's Simpson said.
The pound sterling settled at $1.2681. Inflation pressures in Britain still appear too severe for the Bank of England to cut interest rates at its meeting on June 20, with a majority of economists polled by Reuters predicting the first cut will not take place before August 1.
Elsewhere, the yuan settled at 7.2557 per dollar after local data showed a mixed economic picture in China.
Navy held around 7.2694.
New home prices fell at the fastest pace in more than nine-and-a-half years in May, as the real estate sector struggled to find a bottom, while industrial production in May fell short of expectations.
Retail sales were better than expected.
China's central bank kept its key interest rate unchanged as expected on Monday as a weak yuan continued to hamper policy easing.
The yen remained anchored near a 34-year low against the dollar after the Bank of Japan on Friday pushed through cuts in bond purchase amounts and details of its plan to scale back its monetary stimulus program at its policy meeting in July.
Governor Kazuo Ueda said he did not rule out raising interest rates in July because a weak yen is pushing import costs higher, although that may not be the hawkish statement some had envisioned, said Hiroyuki Machida, Japan's director of foreign exchange and commodity sales. In the Australia and New Zealand Banking Group (OTC:).
“There was a feeling that raising interest rates and reducing its purchases were two separate things” and that the Bank of Japan would decide whether to do so or not based on different criteria, he said.
The yen settled at 157.45 after falling to 158.26 after Friday's decision, its lowest level since April 29.
The yen's depreciation to 160.245 yen to the dollar at the end of April triggered several rounds of Japanese official intervention totaling 9.79 trillion yen.
In cryptocurrencies, Bitcoin rose in the latest trading by 1.1% to $66,454.38.