Dollar stable in light of inflation data; euro advances


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In early European trading, the dollar was stable ahead of key inflation data, while the euro was moving as investors digested the results of the French parliamentary elections.

The dollar is stable in anticipation of CPI data

The dollar was steady at the start of a new week, having suffered a setback after surprisingly strong U.S. payrolls data released on Friday last week, which supported bets that the Federal Reserve would soon start cutting interest rates.

According to CME Group’s (CME) FedWatch tool, the odds of the Fed cutting interest rates at its September meeting stand at around 76%, compared to 64% a week ago.

This week, more signals are expected regarding the likely path of U.S. interest rates, with the release of key consumer inflation data, as well as Fed Chairman Jerome Powell’s two-day testimony before both the Senate and the House of Representatives.

According to several market analysts, the underlying print is expected to come in at 0.2% month-over-month, well in line with consensus, which should be more than enough to keep markets betting on a rate cut for September.

Euro sets its sights on France

The EUR/USD was up 0.1% at 1.0842, the euro was able to recover from early losses as market traders watched both the implications and the results of Sunday’s runoff in France’s parliamentary elections.

The leftist New Popular Front became the dominant force in the National Assembly after Sunday’s elections, as the left’s advance blocked the far-right National Rally party from gaining power, as expected from last weekend’s first-round results.

However, France is now facing an undecided Parliament, which foresees a possible scenario of political instability in the Eurozone’s second largest economy.

For market analysts, there are still some risks of renewed widening as Parliament will have a difficult task in delivering any fiscal consolidation.

GBP/USD rose nearly 0.1% to 1.2818, reaching levels not seen since June 12, continuing the positive tone produced by the opposition Labour Party’s landslide victory during the U.K. general election, which could bring an end to the volatile 14-year rule of the Conservative Party.

For market analysts, the fiscal outlook is unlikely to impact the pound for now, as developments in French politics, the U.S. macroeconomy and Bank of England rate expectations will continue to be the main drivers for the pound.

Bank of England officials will start speaking publicly again after a quiet period ahead of the election, with statements today from external hardliner Jonathan Haskel, and on Wednesday from Huw Pill and Catherine Mann (another hawk).

Yen distances itself from 38-year lows

USD/JPY rose 0.2% in Asia to 161.05. The yen lost ground on Monday, although it moved away from its 38-year lows, after some data pointed to some strengthening in the economy.

In Japan, average cash income posted its strongest growth in more than 30 years. 

USD/CNY rose slightly to 7.2702, with the yuan hovering near seven-month lows.

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