Investing.com – The U.S. dollar traded largely unchanged in quiet trading on Monday, amid easing tensions in the Middle East and ahead of the release of the Federal Reserve’s favorite inflation gauge later in the week.
At 05:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading flat at 106.005, retreating from last week’s five-month peak of 106.51.
Dollar stable ahead of important inflation figures
The dollar rose to new highs last week after Israel launched a missile attack on Iran, escalating the conflict in the volatile Middle East.
However, tensions appear to have cooled, with Tehran downplaying Israel’s retaliatory drone strike on Iran, in what appeared to be a move aimed at averting a regional war.
“Sentiment is generally supported across all asset classes at the start of the week,” ING analysts said in a note. “All interested parties appear to have chosen the path of downplaying the scale and consequences of Friday’s Israeli attacks in Iran.”
That said, the dollar was also supported by strong US economic data and persistent inflation, coupled with a slew of hawkish comments from Fed officials, reducing the likelihood that the Federal Reserve would cut rates in the near term.
These officials will be quiet this week ahead of next week’s inflation forecast, but activity will likely be limited ahead of Friday’s look at the Federal Reserve’s favorite inflation gauge, which economists expect to March will remain high.
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Other economic data for the week includes an initial estimate for the first quarter, which is expected to moderate slightly from the previous quarter. Data on this will also be released, along with revised figures on consumer confidence and inflation expectations.
The euro is rising, but the ECB is making early cuts
In Europe, yields rose 0.1% to 1.0656, trading near six-month lows, while regional economic weakness was expected to lead the European Central Bank to cut rates of the Federal Reserve.
Increased tensions in the Middle East are unlikely to push up energy prices and should not affect the European Central Bank’s plans to start cutting interest rates in June, said François Villeroy de Galhau, chief of the French central bank, Sunday.
“Barring any surprises, there is no need to wait much longer,” Villeroy told business newspaper Les Echos in an interview. “At the moment, the conflict is not leading to a clear increase in oil prices. If this were ever the case, we would need to analyze monetary policy to see whether this shock is temporary and limited, or whether it is transmitted beyond commodities. to underlying inflation.”
climbed 0.1% lower to 1.2355, just above the lowest level since mid-November on Friday, after Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden hinted last week at the slowdown in British inflation, as expected.
“Sterling markets rallied on Friday after Bank of England deputy governor Dave Ramsden eased concerns about price pressures and suggested there were indications that UK inflation is converging towards that of the eurozone,” said ING. “Crucially, he added that the Bank will be “responsive” as evidence on inflation accumulates.”
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Yen Weak Ahead of BOJ Meeting
In Asia, it traded 0.1% higher at 154.74, remaining well above the 154 level and near a 34-year high, leaving investors wary of possible government intervention.
The focus this week is on the Bank of Japan’s interest rate decision on Friday – the central bank’s first meeting after a historic rate hike in March. All signals about future rate increases and policy changes will be closely monitored.
rose 0.1% to 7.2437 after the People’s Bank of China kept its benchmark on hold, as expected.
The LPR was kept at record lows while the PBOC tried to keep monetary policy as loose as possible to stimulate economic growth. However, low interest rates are also expected to keep the yuan under pressure.
The USDCNY pair was near a five-month high, above the psychologically important level of 7.2.
