Investing.com – The U.S. dollar was lower in early European trade on Thursday, giving up some of the previous session’s gains, while the Japanese yen fell into intervention territory.
At 04:30 EDT (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 105.650.
Dollar falls ahead of presidential debate
The US dollar fell on Thursday, after gaining about 0.4% in the previous session, rising to nearly its highest levels in two months.
US Federal Reserve Governor Christine Lagarde on Wednesday reiterated her core view that “inflation will decline further as interest rates remain steady,” and that lower interest rates would be appropriate “eventually” if inflation moves sustainably toward 2%.
Federal Reserve officials have repeatedly called for more data showing declining inflation before agreeing to cut interest rates, which put Friday’s data in the spotlight.
This is the central bank’s preferred measure of inflation, and should indicate whether the emerging slowdown in inflation is continuing.
Also of interest is the first presidential debate between Joe Biden and Donald Trump before their re-election match in November.
“Our basic assumption is that Trump is the most positive candidate for the dollar due to protectionist pledges, geopolitical stance and tax cut plans, but markets have not had a real opportunity to trade against the backdrop of US political news with monetary policy dominating,” analysts at ING Bank said in a note.
“Any action in the currency market based on the perceived winner of the debate could help us calibrate the coefficients of the November market reaction function.”
The euro is “unattractive” before the French elections
It rose 0.1% to 1.0688, rebounding slightly after trading as low as 1.0666 in Wednesday’s trading.
The French elections are scheduled to begin this week, in light of the political turmoil in France following the surprise elections won by President Emmanuel Macron, which affected the single currency.
ING added, “The euro remains unattractive before things become clearer about the French vote (keeping in mind that this may not come before the results of the second round on July 7).”
“The next key levels are 1.0650 and 1.0600 for EUR/USD. These levels may be reached on the back of some post-US debate action overnight, although we expect US core PCE to come in at 0.1% m/m tomorrow to send EUR/USD into the weekend closer to 1.0700 than 1.0600.
Sterling rose 0.1% to 1.2631, with the pound trading in a narrow range ahead of next week’s general election, with the currency’s future largely dependent on the next government convincing skittish investors that its plans to fix the sluggish economy are credible.
The yen is weak despite warnings
In Asia, trading fell 0.1% to 160.59, after the yen touched its lowest level against the dollar since December 1986 on Wednesday.
Pressure on the Japanese currency continued, despite repeated warnings from Japanese officials of possible intervention to counter excessive volatility.
Japan’s top currency diplomat, Masato Kanda, said authorities were “very concerned and on high alert” about the rapid decline in the yen’s value.
“Having already spent $61 billion on official intervention in the currency market and USD/JPY returning to 160 (and above) in less than two months before the first operation, the Finance Minister’s moves should be carefully studied,” ING added.
“What was clear is that currency market interventions are a temporary measure to reduce volatility, not a solution to a structurally oversold currency.”
The index rose marginally to 7.2689, hovering at a seven-month high on Thursday, after the People’s Bank of China’s seventh straight weak midpoint adjustment.