Investing.com – The U.S. dollar was lower in early European trade on Monday ahead of this week’s key employment report, while the euro rose after the first round of voting in France’s election.
At 05:30 ET (09:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 105.255, its lowest level in a week.
The dollar declines before the release of the payroll report
The euro was weighed down by the euro’s strength on Monday, as the single currency carries the biggest weight in the basket, but it was already in retreat after weaker-than-expected inflation data on Friday.
The Federal Reserve’s preferred measure of inflation, the PCE, showed a slowdown in inflation on Friday, raising expectations that the US central bank will start cutting interest rates later this year.
Attention this holiday-shortened week in the US, which Thursday marks Independence Day, will largely be on Friday’s report as traders look for new clues as to when the Federal Reserve might start cutting interest rates.
Economists expect the U.S. economy to add 189,000 jobs in June after a larger-than-expected gain of 272,000 jobs the previous month.
Ahead of the non-farm payrolls data, a report on Tuesday is expected to show that the US economy contracted again in May, and Wednesday will see the results of the Federal Reserve’s June meeting, with the Fed chairman due to attend the European Central Bank’s annual forum in Portugal.
Euro rises after first round of French elections
The euro rose 0.5 percent to 1.0765, its highest in almost two weeks, after the French far-right won the first round of parliamentary elections, which was slightly less than some expectations.
Marine Le Pen’s far-right National Rally party won the first round of French parliamentary elections on Sunday, receiving 33% of the popular vote nationally.
The leftist New Popular Front party came in second place with 28%, while President Emmanuel Macron’s centrist bloc reached 20%.
The National Rally’s margin of victory was smaller than expected, making the final result dependent on party deals ahead of the second round at the end of the week.
“The results of the first round do not provide much certainty about the composition of Parliament, and the second round scheduled for next weekend is actually the big risk event,” analysts at ING said in a note.
This political news was overshadowed by data that showed that all parts of the euro zone took a turn for the worse last month as demand fell at a much faster pace despite factories cutting their prices.
It rose 0.3% to 1.2673, with the pound rising despite data showing growth slowed in June compared to the previous month.
The S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 in June from 51.2 in May, with the final reading below the provisional 51.4.
The UK general election is due to take place on Thursday, with the opposition Labour Party widely expected to win the keys to Downing Street.
“In reality, there was little doubt that Labour would win overwhelmingly, so the election should not be a huge event for markets. We believe a stronger than expected outcome from a populist/hardline Brexit reformer is the most obvious risk for some minor negative reactions in sterling assets,” ING said.
The yen remains weak.
In Asia, the index rose 0.1% to 161.02, remaining close to its weakest level in 38 years.
Japan’s government unexpectedly revised down its first-quarter data on Monday, with the reading now showing a much deeper contraction than initially forecast.
The reading provided a bleak outlook for the Japanese economy, and also raised doubts about how far the Bank of Japan has come to start tightening policy.
The US dollar rose slightly to 7.2683, remaining close to levels last recorded in November.
The purchasing managers’ index (PMI) data showed a mixed picture for the economy. Data released on Sunday showed China’s manufacturing sector contracted for a second straight month in June, but the data showed the sector was growing at its fastest pace in three years.