Dollar strengthens ahead of PCE data; euro weighed by political uncertainty By Investing.com
Investing.com – The US dollar rose in early European trade on Friday, on track for its second straight quarterly gain, the euro fell and the Japanese yen remained on watch for intervention.
At 04:00 ET (09:00 GMT), the U.S. dollar, which tracks the greenback against a basket of six other currencies, was up 0.1% at 105.705, on track for a 1.5% gain in the second quarter.
Dollar rises after discussion; Personal spending data scheduled to be released at a later date
The greenback has been in demand, and this is set to be the second straight quarterly gain, as markets have trimmed their expectations for a cut in US interest rates over the past six months.
The dollar index has recorded gains of about 5% so far this year.
However, the Fed’s preferred measure of inflation, the PCE, is due later in the session and is expected to show that annual growth slowed to 2.6% in May.
Although this rate is still higher than the US Federal Reserve’s target of 2% in the medium term, it may open the way for cuts later this year.
“The market is not fully pricing in the first Fed rate cut until November, so there should be room for US short-term rates to decline as focus shifts more squarely to the September rate cut,” analysts at ING said in a note. .
The dollar also received support overnight thanks to President Joe Biden’s disappointing performance in the first presidential debate late Thursday, increasing the chances of Republican candidate Donald Trump winning the November election.
“We see a potential Trump administration as more positive for the dollar through a more flexible fiscal policy and also through a more aggressive trade/tariff environment,” ING said.
Politics affects the euro
The British pound rose to 1.2641, helped by data that showed growth of 0.7% in the first three months of this year compared to the previous quarter, beating the initial estimate of 0.6% growth.
On an annual basis, GDP in the first quarter rose only 0.3% from a year earlier, higher than the initial estimate of 0.2%.
“It is encouraging that consumption appears to be the biggest driver here,” ING said. “However, we still expect the Bank of England to start cutting rates in August and will start signalling this in its speeches once the general election is over on July 4.”
The euro fell 0.1% against the US dollar to 1.0695, with the euro weighed down by more political uncertainty ahead of the French elections this week.
The latest opinion poll published by Les Echos newspaper on Friday showed that France’s far-right National Rally party has risen further in its forecast and could reach 37% of the popular vote.
“The question for the market is whether the Le Pen government looks at the French bond market and starts to abandon some of its plans for seemingly unfunded tax cuts – or moves forward,” ING added.
Elsewhere, job openings rose more than expected in June, rising by 19,000 on a seasonally adjusted basis, above expectations for a gain of 15,000.
The USD/JPY pair briefly crosses the 161 level
In Asia, trading rose 0.1% to 160.95, after briefly surpassing the 161.00 level earlier in the session.
The pair is now well above the levels that attracted government intervention in May. While officials have continued their verbal warnings, the movement in USD/JPY suggests that no actual intervention has taken place so far.
It also showed a slight improvement in inflation. While headline inflation rose, core inflation remained well below the Bank of Japan’s 2% annual target.
Weak inflation data added to doubts about how much room the Bank of Japan has to tighten monetary policy – the main factor behind the yen’s recent weakness.
It fell marginally to 7.2660, remaining close to its highest level since November. The focus is now on key data, which is scheduled to be released over the weekend.
