By Tom Westbrook and Amanda Cooper
SINGAPORE/LONDON (Reuters) -The dollar was steady on Monday but set to post its first monthly loss this year as investors focused on U.S., European and Japanese inflation data to guide the global interest rate outlook.
Currency trading has been dominated in recent months by the hunt for carry, punishing low-yield currencies and supporting the dollar, while U.S. data has dented policymakers’ confidence about the interest rate outlook.
Several major pairs have reached tight distances. The euro, which gained 0.9% against the dollar last week, was in the middle of a range it has held for more than a year at $1.085.
The euro offered little response on Monday to a survey showing that German business confidence deteriorated in May, while an improvement was expected.
Trading on Monday was thinned by holidays in Britain and the United States.
German inflation data on Wednesday and eurozone figures on Friday will be watched for confirmation of a European rate cut that traders have planned for next week.
Sterling tested the top of a range that has kept it at $1.2735 this year.
The U.S. personal consumer expenditures price index, the Federal Reserve’s preferred inflation measure, is expected to remain flat month-on-month on Friday.
The dollar had fallen back after data showed a slowdown in April’s consumer price rise and confirmation of the trend could drag the dollar even further lower – but the big picture is that inflation and inflation indicators are above the 2 target % of the Fed remain.
The , which measures the U.S. currency’s performance against six others, was last down modestly at 104.71. The economy is on track for a 1.5% decline in May, the biggest one-month decline since December.
“A 25 basis point cut in US rates in September is priced on a 50/50 proposal, with a total of 57 basis points of cuts by December – so we need a big surprise to change that pricing,” Pepperstone said strategist Christ Weston.
“The US core PCE above 3% could be the answer, and that would get the dollar humming, while a push below 2.7% could send relief resounding in markets,” he said.
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As interest rate uncertainty continues, investors have been looking for income, selling low-yielding currencies such as the yen, yuan and Swiss franc against the euro and dollar.
The Swiss franc has been falling all year, reaching its lowest level since April 2023 last week at 0.9928 francs per euro.
The yen could seal its first monthly gain of the year this month thanks to a suspected intervention by Japanese authorities in late April and early May, but the yen has been slumping since then.
Interest rates remained steady at 156.88 per dollar on Monday, but received little support from rising Japanese government bond yields. For example, with a ten-year term they remain almost 350 basis points below US interest rates.
Tokyo’s CPI data, due Friday, is a reliable guide to the national trend and will be closely watched. Finance ministry data will also reveal the extent of Japan’s intervention on Friday.
The US decision to shorten stock market settlements from two days to one is another factor to watch in currency trading this week, as dealers expect it could push trading into the calm early mornings in Asia to conduct.
“Asia-based investors will have just a few hours to gather funding needs, process trade-related FX instructions and manage execution,” said Lloyd Rees, Global Custody Product Lead for Asia and the Middle East at BNY Mellon (NYSE:).
In cryptocurrency markets, ether posted its biggest weekly gain in nearly three years after a surprise approval for some U.S. exchange-traded fund (ETF) filings.
Further approvals remain needed before launch, but the price of the second-largest cryptocurrency by market value rose 25% against the dollar last week and another 5% to $3,938 in Asian trading on Monday.
