The dollar remained firm on Monday, as the euro neared its lowest level in more than a month, amid lingering concerns about the political outlook in Europe.
The market also braced for a series of headline economic data from China, with investors looking to see how the world’s second-largest economy is struggling to gain momentum.
The euro was virtually stable at $1.0703, recovering somewhat after falling to its lowest level since May 1, at $1.06678, on Friday. The currency also recorded its biggest weekly decline since April at 0.88% last week.
Investors have weighed the risk of a fiscal crisis at the heart of the eurozone, as far-right and left-wing parties gain ground ahead of France’s snap legislative elections, putting pressure on President Emmanuel’s centrist administration Macron.
Even after French financial markets fell sharply late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters .
Although the political turmoil is a Euro-bearish story, “as the euro accounts for about 57% of the weighting of the U.S. dollar index, the fall of the euro has indirectly benefited the dollar,” said Matt Simpson, Senior Market Analyst at City Index.
The dollar index, which measures the greenback against a basket of currencies, was little changed at 105.49, after hitting its highest level since May 2 at 105.80 on Friday.
Minneapolis Federal Reserve President Neel Kashkari said Sunday it was “reasonable to anticipate” the U.S. central bank would cut interest rates once this year, until December.
The Fed released updated projections last week that showed the median forecast of 19 U.S. central bankers was for just one interest rate cut this year.
The week is short on major U.S. economic data to help clarify the Fed’s outlook, although Tuesday’s U.S. retail sales and Friday’s flash PMIs may provide some guidance on consumption and the strength of the economy.
“It would take the data coming in well below estimates to revive bets on further Fed cuts with the FOMC meeting still fresh in investors’ minds,” said City Index’s Mr. Simpson.
Sterling last traded at $1.2687, up 0.04% on the day. Inflationary pressures in Britain still appear too strong for the Bank of England to cut rates at its June 20 meeting. A Reuters poll released last week showed that 63 of 65 economists thought a first cut would not come before August 1.
The yen struggled to regain its footing after Japan’s central bank surprised markets by announcing it was keeping its bond purchases unchanged at its meeting on Friday and postponing details of its bond-buying plan. relief at its July meeting.
Governor Kazuo Ueda, however, said he did not rule out raising interest rates in July, as the weak yen led to higher import costs.
The yen was up 0.05% at 157.41 per dollar, having slipped to 158.26 after Friday’s decision, its lowest level since April 29.
The fall of the yen to 160.245 per dollar, its lowest level in 34 years, at the end of April triggered several rounds of official Japanese interventions totaling 9.79 trillion yen.
Machinery orders in Japan fell 2.9% in April from the previous month, Cabinet Office data showed.
Elsewhere, the offshore Chinese yuan held around 7.2699 per dollar ahead of the release of domestic data in the Asian morning. In cryptocurrencies, bitcoin rose 1.62% to $66,794.00.
