Investing.com – The U.S. dollar was steady in early European trade on Monday ahead of key inflation data, while the euro rose as traders digested the results of the French parliamentary election.
At 04:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading largely flat at 104.577, holding firm after falling about 1% last week.
Dollar steady ahead of CPI
The dollar steadied at the start of the new week after being on the back foot following surprisingly weak U.S. data on Friday, which boosted bets that the Federal Reserve will soon start cutting interest rates.
Traders now expect a 76% chance of a rate cut at the Fed’s September meeting, up from 64% a week ago, according to the CME Group’s (NASDAQ:) FedWatch tool.
More clues are expected to emerge on the likely path of U.S. interest rates this week, with key data due in addition to the Federal Reserve Chairman’s two-day testimony before the Senate and House of Representatives.
“This will be a hot week for the US macro economy, with the June CPI report due on Thursday. We expect the core CPI to come in at 0.2% m/m, in line with consensus, which should be enough to keep markets betting on a September rate cut,” analysts at ING said in a note.
Euro heads to France
The euro rose 0.1% against the US dollar to 1.0842, with the euro recovering from early losses as traders digested the fallout from the second round of parliamentary elections in France on Sunday.
The left-leaning New Popular Front emerged as the dominant force in the National Assembly after Sunday’s election, as a leftward surge prevented the far-right National Rally party from gaining power as expected after the first round of elections the previous weekend.
But France now faces a hung parliament, heralding a period of political instability in the eurozone’s second-largest economy.
“Our interest rate team still sees some upside risks as a hung parliament would struggle to deliver any fiscal reform and there are some risks related to a potential left-wing government,” ING added.
Sterling rose 0.1% against the US dollar to 1.2818, climbing to levels first seen since June 12, continuing the positive tone created by the opposition Labour Party’s landslide victory in the UK general election, which could end the 14-year rule of the volatile Conservative Party.
“We doubt that the fiscal outlook will influence sterling so far, while developments in French politics, US macroeconomic growth and the Bank of England’s interest rate outlook will remain the biggest drivers for sterling,” ING said.
Bank of England officials are due to start speaking publicly again after a pre-election lull, with hawkish external member Jonathan Haskel delivering remarks today, and Hugh Bell and Catherine Mann (another hawk) speaking on Wednesday.
Yen moves away from 38-year low
In Asia, the US dollar rose 0.2% to 161.05, with the yen falling on Monday but still off its weakest level in 38 years after data pointed to some strengthening in the economy.
Data showed that average Japanese cash earnings grew at their fastest pace in more than 30 years in
Sterling rose slightly to 7.2702, with the yuan remaining around seven-month lows.