Investing.com – The US dollar was steady in early European trading on Tuesday, while a recovery in European services activity data in April helped the euro.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading flat at 105.915, below last week’s five-month peak.
The dollar is retreating to safe havens
The easing of tensions in the Middle East, with Iranian Foreign Minister Hossein Amirabdollahian indicating that the Islamic Republic has no intention of retaliating against Israel for last week’s strike, has led to traders taking profits on the recent gains from the safe-haven dollar.
That said, the dollar remains high after a string of stronger-than-expected economic data, accompanied by hawkish comments from Federal Reserve officials, forced traders to temper their expectations for interest rate cuts in the summer.
According to the CME FedWatch Tool, markets are pricing in a 46% chance of a first Fed rate cut in September, with a 42% chance in November and June now considered highly unlikely.
The economic data due Tuesday includes both for March and PMI data from S&P Global for April.
However, the focus will be on first-quarter data on Thursday and , the Fed’s preferred inflation measure, on Friday.
The euro was helped by strong Eurozone PMI data
In Europe, yields rose 0.1% to 1.0664, helped by data showing overall business activity in the euro zone grew at the fastest pace in almost a year this month.
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The bloc’s index, compiled by S&P Global, rose to 51.4 this month from 50.3 in March, marking the second month above the 50 level that separates growth from contraction.
The services PMI rose to 52.9 from last month’s 51.5, offsetting the decline in the manufacturing PMI from 46.1 to 45.6.
Despite this uptick in economic data, the European Central Bank is still expected to cut rates before the Federal Reserve, weighing on the euro.
rose 0.1% to 1.2359, helped by data this month showing the fastest growth in UK business activity in almost a year, signaling a recovery from last year’s shallow recession.
The S&P Global UK services and manufacturing sectors jumped from 52.8 in March to an 11-month high of 54.0 in April, led by a rise in the services index from 53.1 to 54.9.
The manufacturing sector unexpectedly fell from 50.3 to 48.7, a move below 50 that puts the sector into contraction territory.
Rates are expected to be cut by at least half a percentage point this year, with the first cut coming in June or August.
Yen awaits BOJ meeting
In Asia, yields fell to 154.81, just below new 34-year highs above the 155 level, prompting increasing speculation about when the Japanese government will intervene in currency markets.
The ECB will hold its final policy-setting meeting on Friday, where the central bank is widely expected to leave interest rates unchanged after raising them for the first time in 17 years in March.
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rose 0.1% to 7.2469 and remained close to a five-month high, above the psychologically important level of 7.2.
