Investing.com – The US dollar edged higher on Tuesday, with the safe-haven asset benefiting from weakness on Wall Street, although gains are limited ahead of the release of key inflation data later in the week.
At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 105.160, after reaching a high of 105.91 last week .
The safe haven dollar sees demand
Declining confidence in the tech sector on Wall Street helped push the U.S. currency higher on Tuesday, but gains are minimal as traders await Friday’s price index data.
Fed officials have called for more data showing a slowdown in inflation before agreeing to a rate cut, and the U.S. central bank’s preferred inflation gauge will likely play a role in the outlook for interest rates.
Politics was also at the forefront of investors’ minds, with the first US presidential debate between President Joe Biden and his predecessor Donald Trump on Thursday.
“The dollar remains sidelined on two key event risks later this week,” ING analysts said in a note. “The first presidential debate between President Biden and Donald Trump will take place on CNN on Thursday evening. It may be too early to expect this, but we will want to see if the dollar responds to who ‘wins’ the debate. A positive outcome for Trump could increase the dollar margin.”
But the bigger market move this week will be Friday’s core PCE inflation.
“If rates were to meet expectations of a month-on-month reading of 0.1%, we suspect the short end of the U.S. curve could move lower and take the dollar with it.”
Politics weighs on the euro
fell 0.1% to 1.0728, with politics also playing a role in the euro’s weakness.
French elections start this weekend, and political unrest in France following President Emmanuel Macron’s shock election call earlier this month has resulted in a likely monthly loss of around 1% for the single currency.
The French National Rally has said the party will respect the country’s fiscal rules, which has helped limit losses, but the plan to cut €7 billion in taxes still appears to be in place – partly financed by France’s contribution to to reduce the EU budget.
“Our Eurozone macro team sees continued stress here and we would therefore caution against driving EUR/USD back towards and above 1.08 as there are still many potentially bearish chapters to play out here,” ING added.
rose 0.1% to 1.2696, with the pound steady as Bank of England policymakers will keep their views to themselves until after the July 4 general election.
“But then we would look for the more lenient members of the seven who voted for unchanged rates last week to make their voices heard,” ING said.
The yuan falls to a seven-month low against the dollar
In Asia, it traded 0.1% lower at 159.47, with Japanese officials continuing to warn they would intervene in case of “excessive” volatility in the yen.
The minutes of the BOJ’s June meeting also provided some support for the yen, as some officials raised the possibility of a rate hike in July.
inched 0.1% higher to 7.2628, with the yuan hitting a seven-month low after a weak midpoint fix from the People’s Bank of China.
Sentiment toward China was largely soured by the prospect of a trade war with the West, after Chinese officials noted such a possibility in light of high European tariffs on electric vehicles.
