The U.S. dollar remained flat during Tuesday’s European session, while a rebound in Europe’s service sector activity for April boosted the euro.
Dollar Declines Amid Weakening Safe-Haven Sentiment
The easing of tensions in the Middle East in recent days, as Iranian Foreign Minister Hossein Amirabdollahian has signaled that the Islamic Republic has no intention of retaliating against Israel for last week’s attack, has led investors to take advantage of the dollar’s recent gains as a stable safe haven.
Despite recent events, the U.S. currency has continued to rally following a series of better-than-expected economic reports and assertive statements from Federal Reserve officials, leading currency traders to reduce their expectations for rate cuts this summer.
According to today’s economic calendar, the reports include new home sales data for March, as well as PMIs for both the manufacturing and services sectors for April.
However, the focus will primarily be on the first quarter gross domestic product data due on Thursday and the Federal Reserve’s personal consumption expenditures price index, its primary inflation measure, set for release on Friday.
Positive eurozone PMI data supports the euro
The euro rose 0.1% to the 1.0664 level, helped by data pointing to overall eurozone business activity rising at its fastest pace in nearly a year this month.
The composite purchasing managers’ index, compiled by S&P Global, settled at 51.4 this month, up from 50.3 in March, marking the second month above the 50 level that differentiates the pace of growth from contraction.
The services PMI rose to 52.9 points from 51.5 the previous month, offsetting a drop in the manufacturing PMI from 46.1 to 45.6 points.
Despite this rebound in activity data, the European Central Bank is still expected to cut interest rates before the Federal Reserve, a factor likely to limit the euro’s appreciation.
GBP/USD scores a 0.1% gain to the 1.2359 level, benefiting from data this month that revealed the strongest growth in UK business activity in nearly a year, pointing to a rebound after a deep recession last year.
The S&P Global UK composite manufacturing and service sector purchasing managers’ index rose in April to its highest level in 11 months (54.0 points from 52.8 in March), helped by a rise in the service sector index (54.9 from 53.1).
Manufacturing unexpectedly declined from 50.3 to 48.7, a move below 50 that puts it in the contraction zone.
All indications are that the Bank of England will cut rates by at least half a percentage point this year, with the first cut likely to come in June or August.
Markets await the Bank of Japan meeting for yen cues
And in Asia, USD/JPY falls to 154.81, just shy of new 34-year highs above the 155 level, prompting increased expectations about when the Japanese government will intervene in currency markets.
The Bank of Japan will hold its next policy meeting on Friday, and it is expected to maintain rates after increasing them in March for the first time in 17 years.
USD/CNY points up 0.1% to 7.2469, hovering near five-month highs ahead of the psychologically relevant 7.2 level.
