Dollar falls ahead of PCE data, euro finds support


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The U.S. dollar declined on Monday, consolidating after hitting a nearly eight-week high last week, while the euro rose even as German business sentiment weakened.

Dollar reacts to PCE data

Last week, the US currency received support after the release of better-than-expected PMI data, as the strength of the country’s economy could allow the Federal Reserve to maintain high interest rates.

Traders have been able to regain some of the losses at the start of the new week as attention is focused on the PCE price index data.

Fed officials have been waiting for more data that would signal a slowdown in inflation before agreeing to interest rate cuts, and this week’s Friday reading of the Fed’s preferred inflation gauge is likely to influence interest rate estimates.

Economists expect annual growth in the index to slow to 2.6% in May. If the reading is low, it will likely bolster bets and hopes for a September rate cut, which futures currently estimate at about 65%, according to CME’s FedWatch tool.

Euro rallies despite Ifo drop

EUR/USD rose nearly 0.2% to 1.0718, recovering from recent losses, despite an unexpected drop in business sentiment in June.

The Ifo institute reported that its business climate index fell to 88.6 in June from 89.3 in May, compared to expectations for a reading of 89.7.

“The German economy is struggling to overcome stagnation,” Ifo president Clemens Fuest said.

The euro has fallen more than 1% this month after the right-wing had a strong showing in European Parliament elections earlier this month, prompting France’s President Emmanuel Macron to call an early election.

GBP/USD rose 0.1% to 1.2659, with the pound achieving stability after falling around a five-week low in the wake of the Bank of England’s latest policy meeting.

The Bank of England kept interest rates on hold, although some policymakers noted that the decision was “finely balanced,” raising expectations that policymakers will agree to a cut when they meet again in early August.

Yen falls, sparking rumors of intervention 

In Asian markets, USD/JPY eased 0.1% to 159.68, retreating after the pair hit a high of 159.94 in early trading on Monday, its highest since April 29, when it hit a 34-year high of 160.245, prompting Japanese authorities to spend around 9.8 billion yen to prop up the currency.

The latest weakness in the yen prompted warnings from several top Japanese officials regarding further intervention, with the country’s top foreign exchange diplomat, Masato Kanda, stating that the government would “intervene around the clock if necessary.” 

USD/CNY rose to 7.2618, trading in a tight range, with the yuan close to a seven-month low, hurt by concerns over weakness in the world’s second-largest economy.

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