The U.S. dollar rose slightly in early European trading on Monday, supported by safe-haven bids as tensions in the Middle East escalated, while sterling fell ahead of a Bank of England policy meeting this week.
At 04:50 ET (08:50 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 104.247.
Dollar rises ahead of Fed meeting
The safe-haven dollar found some support on Monday following last weekend’s deadly rocket attack in the Israeli-occupied Golan Heights.
The strike reportedly killed at least 12 people, and both Israel and the United States blamed the Iran-backed Hezbollah, which denied responsibility for the attack.
Israel has vowed to respond to Hezbollah in Lebanon, and Israeli aircraft struck targets in southern Lebanon on Sunday.
However, the gains are slight, and more attention is focused on the meeting that concludes on Wednesday.
While the U.S. central bank is widely expected to leave interest rates unchanged this week, the chances of a first rate cut have become more likely, according to economists at Goldman Sachs.
The key factor pushing the FOMC toward a rate cut is positive inflation data in May and June. After more consistent inflation numbers in the first quarter—largely due to residual seasonality and typical monthly noise—the second quarter saw a significant improvement in inflation news.
Sterling falls; interest rate decision on the horizon
In Europe, the pound fell 0.5% to 1.2809, ahead of Thursday’s meeting.
The chances of the central bank starting its rate-cutting cycle this week are largely seen as a chance, as policymakers have to judge between higher-than-expected service price inflation and weak growth.
The euro fell 0.2% against the US dollar to 1.0836, with the euro weighed by the prospect of further interest rate cuts this year, following the cut in June.
“There are also some first-tier numbers due out of the eurozone this week,” analysts at ING said in a note. “Tomorrow’s Q2 GDP report is expected to show a tepid 0.5% y/y growth, but it is Wednesday’s flash CPI estimates that should have a bigger impact on the market. The recent ECB meeting was more data-driven with President Christine Lagarde dropping forward guidance.”
BOJ meeting approaching
In Asia, the pair rose slightly to 153.75, with the pair approaching its lowest levels in about three months, ahead of the meeting later this week.
Analysts are divided on whether the central bank will raise interest rates by 10 basis points or keep them steady, while the Bank of Japan is also due to provide more details on how it plans to start tapering its asset purchases.
The Chinese yuan rose 0.1% to 7.2584 against the US dollar, after suspected government intervention sparked sharp swings in the yuan’s value last week.