Investing.com – The U.S. dollar rallied in early European trading on Wednesday after selling off the previous session, with traders remaining wary of upcoming economic data looking for further clues about the Federal Reserve’s future monetary policy intentions.
At 04:40 ET (08:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 105.695, after rising 0.4 overnight %, to the lowest level since April 12.
Cooling business growth hits dollar
The easing of tensions in the Middle East, with Iran showing little appetite for all-out war with Israel after Israel’s attack last week, has led to the safe-haven dollar retreating from recent highs .
However, the dollar’s decline on Tuesday was largely driven by data showing a cooling in US business growth, with activity falling to a four-month low in April.
That said, comments from Federal Reserve officials have been mostly hawkish lately, suggesting that this individual data point is unlikely to result in a pushback of rate cuts into the summer.
“While activity indicators could trigger some exchange rate moves, the kind of large repricing of Fed expectations we saw in April could only be driven by lower inflation, soft employment data or Fed communications,” ING analysts said in a note.
Thursday’s first-quarter data and Friday’s , the Fed’s preferred inflation measure, could prompt bigger moves.
The Fed’s first rate cut is widely expected to come in September, with November the second favorite month and June now considered highly unlikely.
Remove ads
.
The Euro gives back some of the gains from the previous session
In Europe, yields fell 0.1% to 1.0689, after rising almost 0.5% on Tuesday, as data showed the euro zone grew at its fastest pace in almost a year, mainly due to a recovery in the service sector.
Sentiment in Germany, the euro zone’s largest economy, also picked up in early April, with the country rising to 89.4 from a revised 87.9 the month before.
The ECB effectively promised a rate cut at its next policy meeting on June 6, but Bundesbank President Joachim Nagel said on Wednesday that this would not necessarily be followed by further policy easing if eurozone inflation remains stubborn.
fell 0.1% to 1.2430, after gaining around 0.8% in the previous session, benefiting from overnight data showing UK companies posting their fastest growth in almost a year.
Rates are expected to be cut by at least half a percentage point this year, but strong data could cause the central bank to delay its first cut until after the summer.
USD/JPY within sight of 155
In Asia, it rose 0.1% to 154.89, trading near a 34-year high and within sight of the 155 level.
The yen weakened even as a slew of Japanese officials warned of government action to prop up the beleaguered currency.
The meeting will meet on Friday and is expected to keep rates unchanged after a historic rate hike in March. But the outlook for inflation and economic growth will be closely watched.
Remove ads
.
rose to 7.2460 and remained close to a five-month high, while rising 0.3% to 0.6502, near a two-week high, after stronger-than-expected consumer inflation for the first quarter, and further rose above the Reserve Bank of Australia’s 2%. Annual target of 3%.
