The dollar remains strong, political uncertainty weakens the euro

The dollar remains strong, political uncertainty weakens the euro
The dollar remains strong, political uncertainty weakens the euro

The dollar remained stable on Monday, while the euro traded around its lowest levels in more than a month. Political unrest in Europe has increased the level of uncertainty among traders, as investors wait for additional data to gauge the strength of the U.S. economy.

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 .

The euro remained stable at $1.0713, after falling on Friday to its lowest level since May 1, at $1.06678. It also recorded its biggest weekly decline since April at 0.88% last week.

“Operators want certainty, but this may not materialize before the second round of voting (July 7), so the prospect of a further decline in the French and European markets is real,” said Chris Weston, head of research at Pepperstone.

The dollar index, which compares the U.S. currency to a basket of six other currencies, was unchanged at 105.54, its highest level since May 2, mainly due to euro weakness.

The single European currency “accounts for about 57% of the weighting of the U.S. dollar index, the euro’s fall has indirectly benefited the dollar,” said Matt Simpson, senior market analyst at City Index.

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 and wait until December to do so.

Last week, the Fed released updated projections that showed the median forecast of 19 U.S. central bankers was for just one interest rate cut this year.

LIGHT WEEK FOR DATA

This week is short on major U.S. economic data to help clarify the Fed’s outlook, although U.S. retail sales on Tuesday and flash PMIs on Friday can provide some guidance on consumption and the strength of the economy.

“The data would need to be significantly below estimates to revive bets on further Fed cuts, with the FOMC meeting still very much on investors’ minds,” said City Index’s Mr. Simpson.

The British pound was down 0.1% at $1.2671. British inflationary pressures still appear too strong for the Bank of England to cut rates at its June 20 meeting, with the majority of economists polled by Reuters predicting the first cut will not come before August 1.

Separately, the yen remained near a 34-year low against the dollar after the Bank of Japan on Friday postponed the reduction in bond purchases and details of its reduction plan until its July meeting.

Governor Kazuo Ueda said he would not rule out raising interest rates in July as the weak yen drives up import costs, although that statement was not as optimistic as some have made it out. raw, said Hiroyuki Machida, director of foreign exchange and commodities sales in Japan at Australia & New Zealand Banking Group.

“The feeling was that raising rates and easing monetary policy were two separate things that the Bank of Japan would decide whether or not to do based on different criteria,” he said.

The yen weakened slightly to trade at 157.765, after slipping to 158.26 after Friday’s decision, its lowest level since April 29.

The fall of the yen to 160.245 per dollar at the end of April triggered several rounds of official Japanese interventions totaling 9.79 trillion yen. As for cryptocurrencies, bitcoin fell 1% to $65,794, while ether fell 2% to $3,524, according to LSEG data.

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