Investing.com – The US dollar rose in early European trading on Tuesday, bouncing off a month’s low ahead of Fed Chairman Jerome Powell’s Senate testimony, while the euro held firm amid a volatile French political environment .
At 04:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading up 0.1% at 104.737, just above the overnight low of 104.622.
Dollar bounces ahead on Powell’s testimony
The dollar rebounded a bit on Tuesday, but remains subdued after Friday’s weakness and ahead of Chairman Powell’s two-day congressional testimony, starting later on Tuesday with the Senate and followed by the House on Wednesday of Delegates.
Confidence is growing that the Fed will approve the cycle’s first rate cut in September, with traders currently seeing a 76% chance of a rate cut, up from 66% a week ago, according to figures from CME Group (NASDAQ:) FedWatch- tool.
“We maintain our view that if there is any deviation from the recent narrative, it should be on the mild side, as Powell may view the June Dot Plot revisions as too aggressive and seek to refine communications based on recent data. ING analysts said in a note.
More clues about the likely path of US interest rates will emerge this week, with the release of key data on Thursday.
French policy to float the euro
fell slightly to 1.0819, not far from Monday’s nearly four-week peak of 1.0845. The common currency also fell to 1.0791 in volatile trading on the same day.
Traders are still trying to digest the implications of Sunday’s second round of parliamentary elections in France, with the country now facing a hung parliament and difficult negotiations to form a government.
A hung parliament in France is likely to complicate policymaking, S&P Global said on Monday, warning that more debt or a sustained slump in economic growth could lead to another rating downgrade.
The credit rating agency lowered the rating for France at the end of May.
“It is likely that negotiations will be anything but easy for President Emmanuel Macron, and that markets will become impatient. A widening of the spread between the OAT and the Bund remains a tangible risk, and we expect the EUR/USD rise to be capped in the near term,” ING said.
traded largely unchanged at 1.2805, after rising to 1.2845 on Monday, the strongest since June 12.
The Bank of England’s policymaker said that day that he wanted to keep interest rates unchanged because inflationary pressures in the labor market remained.
The next meeting of the Bank of England starts in early August.
The yen remains weak
In Asia, trading 0.1% higher at 161.01, with the yen remaining under pressure as a slew of weak Japanese economic data reinforced expectations that the Bank of Japan will have limited room to raise rates further .
traded 0.1% higher at 7.2722, with the yuan hovering around a seven-month low, battered by increased concerns about a trade war with the West.
