Investing.com – The US dollar rose on Tuesday, as safe havens benefited from weakness on Wall Street, although gains were limited ahead of key inflation data later in the week.
At 04:20 EDT (08:20 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, was up 0.1% at 105.160, after reaching a high of 105.91 last week.
The safe haven dollar is seeing demand
Draining confidence in the technology sector on Wall Street helped the US currency rise on Tuesday, but gains are minimal as traders await price index data on Friday.
Fed officials called for more data showing inflation slowing before agreeing to cut interest rates, and the US central bank’s preferred measure of inflation is likely to take interest rate expectations into account.
Politics was also at the top of investors’ minds, with the first US presidential debate between President Joe Biden and his predecessor Donald Trump scheduled for Thursday.
“The dollar remains sidelined ahead of two key events later this week,” analysts at ING said in a note. Thursday night sees the first presidential debate between President Biden and Donald Trump on CNN. It may be too early to predict this, but we want to see if the dollar will respond to whoever “wins” the debate. A positive result for Trump could lead to a rise in the dollar.
But the biggest market mover this week will be Friday’s core PCE inflation reading.
“If expectations for a 0.1% monthly reading are met, we suspect the short end of the US curve could fall and take the dollar with it.”
Politics weighs on the euro
The index fell 0.1% to 1.0728, as politics also played its role in the euro’s weakness.
French elections are set to begin this weekend, and political turmoil in France following President Emmanuel Macron’s surprise call for early elections earlier this month has led to a potential monthly loss of around 1% for the single currency.
France’s National Rally said the party would respect the country’s budget rules, which helped limit losses, but a $7 billion tax cut plan appears to remain in place – partly funded by a cut in France’s contribution to the EU budget.
“The Eurozone macro team sees continued pressures here, so we caution against chasing EUR/USD back to 1.08 and above, as there are still several potential bearish quarters to be seen here,” ING added. .
It rose 0.1% to 1.2696, with the pound steady as Bank of England policymakers are set to keep their views to themselves until after the general election on July 4.
“But after that, we will look for the most pessimistic members of the seven who voted for interest rates unchanged last week to make their voices heard,” ING said.
The yuan falls to a seven-month low against the dollar
In Asia, trading fell 0.1% to 159.47, with Japanese officials continuing their warnings that they will intervene in the event of “excessive” volatility in the yen.
Minutes from the Bank of Japan’s June meeting also provided some support for the yen, as some officials were seen raising the possibility of a rate hike in July.
It rose 0.1% to 7.2628, with the yuan reaching a seven-month low after a weak reform from the People’s Bank of China.
Sentiment toward China has been largely influenced by the prospect of a trade war with the West, after Chinese officials signaled such a possibility in the face of hefty European tariffs on electric vehicle imports.