The dollar fell against the euro on Monday, as the common currency recovered from more than one-month lows hit last week due to political unrest in Europe.
The euro was up 0.25% at $1.07305 on Monday, after hitting a six-week low of $1.066775 last week following the announcement of a snap parliamentary election in France .
European markets have been under pressure after President Emmanuel Macron called for snap elections after his ruling centrist party was defeated by Marine Le Pen’s eurosceptic National Rally in European Parliament elections.
Investors have been eyeing the risk of a fiscal crisis in the heart of the eurozone, as far-right and left-wing parties gain ground ahead of French elections, putting pressure on Mr. Macron’s centrist administration.
Ms Le Pen attempted to allay some of those fears over the weekend, saying she would not call for Mr Macron’s resignation and that she was “respectful of institutions”, in an interview with Le Figaro.
Even after French financial markets fell sharply late last week, European Central Bank policymakers have no plans to discuss emergency buying of French bonds, five sources said. to Reuters.
“As French markets have started to stabilize somewhat since last week, the euro has responded by recovering slightly,” said Helen Given, a foreign exchange trader at Monex USA in Washington.
However, Ms Given said the trend remained in favor of the dollar.
“If US retail sales turn out to be weaker than expected tomorrow, as most US data has been in recent sessions, we could see a more substantial reversal, but the pair’s underlying dynamics is heavily influenced by geopolitics right now,” she said.
U.S. import prices fell for the first time in five months in May. Friday’s unexpected Labor Department report, combined with other recent data showing moderate inflation, helped sustain a September interest rate cut by the Federal Reserve.
The dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% at 105.35.
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.
Philadelphia Fed President Patrick Harker said Monday that if his economic forecasts are confirmed, the Federal Reserve would be able to cut its benchmark interest rate once this year.
The pound rose 0.15% to $1.2707 on Monday, although it remained close to the one-month low of $1.26575 reached in the previous session, as traders await a meeting of Bank of England policy this week.
Inflationary pressures still appear too strong for the Bank of England to cut rates at its meeting on Thursday, with the majority of economists polled by Reuters predicting the first cut will not come before August 1.
The yen remained near a 34-year low against the dollar after the Bank of Japan decided on Friday to reduce the amount of its bond purchases. The dollar was up 0.2% at 157.73 yen.
Traders remain on the lookout for signs that Japanese authorities could intervene to support the yen.
“All of the pair’s fundamentals are in favor of the dollar right now, and while some volatility remains, the overall trajectory has been more stable than what we saw in March and April,” Monex’s Given said.
“I expect the rhetoric from currency officials to intensify around the 160 mark, but as things stand, it would take a lot for BoJ officials to finance further intervention – at some point given, it might no longer be worth it,” she added.
The Mexican peso lost 0.4% on Monday on concerns about the fallout from judicial reforms proposed by President-elect Claudia Sheinbaum, while other Latin American currencies weakened on rising Treasury yields American following stronger than expected data.
