Investing.com – The US dollar rose higher on Wednesday while the euro fell after the release of disappointing eurozone activity data pointed to further interest rate cuts by the ECB.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.232, extending an overnight recovery.
Dollar looks at political uncertainty
The dollar has benefited from the volatility surrounding the US political situation.
Vice President Kamala Harris received strong support from the Democratic Party following her endorsement as presidential candidate by President Joe Biden. A Reuters/Ipsos poll also showed her slightly outperforming Republican candidate Donald Trump.
That said, Trump remains the favorite to win November’s presidential election.
“The dollar losses from the softer June CPI report have now been erased in most USD crosses, with JPY, CHF and GBP emerging as some key gainers,” ING analysts said in a note.
“Looking at the bottom of the FX scorecard, we see that Trump trading still plays a major role.”
That said, U.S. inflation data for June will be released on Friday, and the Fed’s preferred inflation measure could quickly change currency sentiment.
Euro lower after weak activity data
In Europe, yields fell 0.2% to 1.0835 after the release of Eurozone business activity data for July.
Eurozone business activity growth stagnated in July, with the preliminary HCOB falling this month to 50.1 from 50.9 in June, barely above the 50 mark that separates growth from contraction.
Last week, rates were left unchanged at 3.75%, but further signs of slowing regional growth point to further rate cuts this year.
The markets are almost expecting two ECB interest rate cuts for the rest of the year.
traded 0.1% lower at 1.2898, falling back from the 1.30 level the pair saw for the first time in a year last week.
Data showed UK business activity picked up this month, supported by the fastest output growth in two years and the strongest inflow of new orders since April 2023.
The July S&P Global Flash rose to 52.7, up from a June low of 52.3.
Elsewhere, the Canadian dollar rose 0.1% to 1.3796, near a three-month low for the Canadian dollar, ahead of a rate-setting meeting later in the session.
Markets are pricing in an 84% chance of a 25 basis point rate cut, which would be the BoC’s second cut in as many months.
Yen goes from strength to strength
In Asia, the pair fell 0.5% to 154.81, falling to its lowest level since early June.
The yen’s rise followed a recovery last week, when the currency rose sharply in value amid suspected government intervention in the currency market.
Some positive Purchasing Managers’ Index data also supported the yen, as an unexpected contraction in industrial activity was largely offset by a recovery in services activity.
The focus is now squarely on a meeting next week, with recent inflation and PMI data fueling increasing speculation that the central bank will raise rates by 10 basis points.
rose to 7.2773, close to the highest levels last seen in November, as sentiment toward China remained gloomy amid continued concerns over the country’s slowing economic growth.
