Investing.com – The U.S. dollar steadied in early European trade on Tuesday, while stronger data on European services sector activity in April helped the euro.
At 05:25 ET (0925 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was unchanged at 105.915, below a five-month peak seen last week.
The safe-haven dollar retreats
Easing tensions in the Middle East, with Iranian Foreign Minister Hossein Amirabdollahian saying the Islamic Republic had no intention of retaliating against Israel for striking the latter last week, led traders to book profits on recent gains in the safe-haven dollar.
However, the dollar remained elevated after stronger-than-expected economic data followed by hawkish comments from Federal Reserve officials prompted traders to lower expectations for a rate cut in the summer.
According to the CME FedWatch Tool, markets place the likelihood of the Fed’s first rate cut in September at 46%, with November at 42% and June now considered very unlikely.
Economic data due Tuesday includes data for March as well as S&P Global PMI data for April.
However, the focus will be on first-quarter data on Thursday and the Fed’s preferred inflation index on Friday.
The euro was supported by strong eurozone PMI data
In Europe, the index rose 0.1% to 1.0664, helped by data showing overall business activity in the euro zone grew at its fastest pace in almost a year this month.
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The block index compiled by S&P Global jumped to 51.4 this month from 50.3 in March, marking its second month above the 50 level that separates expansion from contraction.
The services PMI rose to 52.9 from 51.5 last month, offsetting a fall in the manufacturing PMI to 45.6 from 46.1.
Despite this jump in economic activity data, the European Central Bank is still expected to cut interest rates ahead of the Federal Reserve, putting pressure on the euro.
rose 0.1% to 1.2359, helped by data this month showing the fastest growth in UK business activity in almost a year, pointing to a recovery from last year’s shallow recession.
The S&P Global UK index for the services and manufacturing sectors jumped to an 11-month high of 54.0 in April from 52.8 in March, helped by a rise in the services index to 54.9 from 53.1.
The manufacturing sector unexpectedly fell to 48.7 from 50.3, a fall below 50 that puts it in contraction territory.
Rates are expected to fall by at least half a percentage point this year, with the first cut coming in June or August.
Yen awaits Bank of Japan meeting
In Asia, the index fell to 154.81, just below a new 34-year high above 155, raising speculation over when the Japanese government would intervene in currency markets.
The central bank will hold its final policy-setting meeting on Friday, where the central bank is expected to keep rates unchanged after raising them in March for the first time in 17 years.
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The pair rose 0.1% to 7.2469, remaining near a five-month high and above the psychologically important 7.2 level.