Bridget Riley
TOKYO (Reuters) – The dollar strengthened on Monday as the euro hovered near a more than one-month low amid political turmoil in Europe while investors awaited new data on the strength of the U.S. economy.
Investors are mulling the risk of a budget crisis in the euro zone’s heartland as far-right and left-wing parties gain momentum ahead of surprise parliamentary elections in France, putting pressure on President Emmanuel Macron’s centrist administration.
Even after French financial markets suffered a brutal sell-off late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters.
The euro was down 0.04% at $1.07025 after falling to its lowest level since May 1 at $1.06678 on Friday. Last week, the currency also recorded its biggest weekly fall since April, down 0.88%.
While political instability is a pessimistic story for the euro, “with the euro accounting for about 57% of the weight, the euro’s fall has indirectly benefited the dollar,” said Matt Simpson, senior market analyst at City Index.
The index, which measures the dollar against a basket of comparable currencies, was unchanged at 105.54, after hitting its highest level since May 2 at 105.80 on Friday.
Minneapolis Federal Reserve President Neel Kashkari said on Sunday it was a “reasonable forecast” that the U.S. central bank would cut interest rates once this year, waiting to do so until December.
Last week, the Fed released updated forecasts that showed the average forecast of all 19 U.S. central bankers was for a single cut in interest rates this year.
There’s little major U.S. economic data this week to help clarify the Fed’s outlook, although U.S. retail sales on Tuesday and flash PMIs on Friday could provide hints on consumption and economic strength.
“The data will likely deviate significantly from estimates to renew bets on more Fed cuts as the FOMC meeting is still fresh in investors’ minds,” City Index’s Simpson said.
Sterling remained stable at $1.2681. Inflation pressures in Britain still appear too strong for the Bank of England to cut rates at its June 20 meeting, with most economists polled by Reuters forecasting the first cut would not occur until August 1 at the earliest.
Elsewhere, the yuan was unchanged at 7.2557 to the dollar after domestic data showed a mixed economic picture in China.
Offshore held at 7.2694.
New home prices fell at their fastest pace in more than 9-1/2 years in May as the property sector struggles to find a bottom, while May industrial production came in below forecasts.
Retail sales were better than expected.
China’s central bank left its key interest rate unchanged as expected on Monday as the weak yuan continues to hamper policy easing.
The yen remained near a 34-year low against the dollar after the Bank of Japan on Friday unveiled a cut in bond purchases and details of its plan to taper at its July policy meeting.
Gov. Kazuo Ueda has said he has not ruled out raising interest rates in July as the yen’s weakness drives up import costs, although that may not be the hawkish statement some have taken it to be, said Hiroyuki Machida, director of Japan’s foreign exchange and commodities sales department. . in Australia and New Zealand Banking Group (OTC:).
“The message was that raising rates and cutting them are two different things,” and the Bank of Japan would decide whether to do so or not based on different criteria, he said.
The yen stabilized at 157.45 after falling to 158.26 after Friday’s decision, its weakest since April 29.
The yen’s fall to 160.245 per dollar in late April triggered several rounds of official Japanese intervention totaling 9.79 trillion yen.
In cryptocurrencies, Bitcoin was last up 1.1% at $66,454.38.