Investing.com – The U.S. dollar was slightly higher in early European trade on Tuesday, recovering from recent losses, while the euro fell ahead of key inflation data.
At 04:30 ET (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 105.700, rebounding from a one-week low hit earlier in the week.
Dollar gets boost from Trump; Powell set to speak
Technology stocks have been rising as Donald Trump’s chances of a second term have increased in recent days, buoyed by President Joe Biden’s stuttering debate performance last week, as well as the Supreme Court’s ruling on Monday that Trump has some immunity from prosecution over his attempts to overturn his 2020 election loss.
“It is now clear that investors have linked dollar strength to Trump. This was also our interpretation given the potential for tax cuts, inflationary protections and greater geopolitical risks under Trump,” analysts at ING said in a note.
There is more evidence about the Fed’s future monetary policy decisions this week, starting with the Fed Chair’s speech at the European Central Bank conference on Tuesday.
The June Fed meeting data is due on Wednesday, while the June data is due on Friday, and should provide more insight into the labor market – a key consideration the Fed will have to take into account when 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.
Euro awaits inflation data
The euro fell 0.2% against the US dollar to 1.0716, ahead of the release of June euro zone data later in the session.
The headline figure is expected to grow 2.5% year-on-year, down from 2.6% in May, while the core figure, which excludes volatile food and energy prices, is expected to grow 2.8% year-on-year in June, down from 2.9%.
“This may not be enough to trigger a significant repricing of interest rate expectations, but it could temper the hawkish response from ECB officials,” ING said.
The European Central Bank president is due to speak today at the central bank’s annual meeting in Portugal, which could change interest rate expectations in the future.
Politics will remain in the spotlight this week, after the far-right National Rally party won the first round of France’s parliamentary elections on Sunday.
However, the chances of the Euroskeptic, anti-immigration conservative Republican Party winning power next weekend remain uncertain, and will depend on the political deals its rivals strike in the coming days.
“The positive rally in the euro following the in-line results of the French election lost momentum yesterday, and we doubt there will be much additional support for the single currency in light of the open questions ahead of the second round on Sunday,” ING added.
The pound fell 0.2% against the US dollar to 1.2627, with the UK general election taking place on Thursday, with the opposition Labour Party widely expected to return to power.
This result could lead to a return to stability after the severe political turmoil during the Conservatives’ 14-year rule, which could boost the pound.
Yen continues to fall
In Asia, the pound rose 0.2% to 161.69, with the pair hitting a near 38-year high, fuelling further speculation about possible government intervention in currency markets.
Japan’s finance minister said on Tuesday that authorities are vigilant for sharp moves in the currency market, but he stopped short of issuing a clear warning about intervention.
Sterling rose 0.1% to 7.2714, remaining close to a seven-month high, weighed down by a broad shift in the central bank’s daily guidance, which analysts say suggests authorities are willing to let the currency weaken further.