Authors: Brigid Riley and Amanda Cooper
TOKYO/LONDON (Reuters) – The dollar held steady on Monday while the euro traded near more than one-month lows as political turmoil in Europe increased uncertainty among traders and investors waited for more data to gauge the strength of the U.S. economy.
Investors are weighing the risk of a budget crisis in the heart of the eurozone as far-right and left-wing parties gain momentum ahead of early French general elections, putting pressure on President Emmanuel Macron’s centrist administration.
Five sources told Reuters that even after a brutal sell-off in French financial markets delayed last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds.
The euro was unchanged at $1.0713 after falling to its lowest since May 1 at $1.06678 on Friday. Last week it also recorded the biggest weekly decline since April at 0.88%.
“As investors want certainty, this may not happen until the second round of voting (July 7), so the prospect of further declines in the French and EU markets is real,” said Chris Weston, head of research at Pepperstone.
The index, which compares the U.S. currency with a basket of six other currencies, was unchanged at 105.54, around its highest level since May 2, helped mainly by a weakening euro.
The single European currency “accounts for around 57% of the weight, the decline in the euro has indirectly benefited the dollar,” said Matt Simpson, senior market analyst at City Index.
Minneapolis Federal Reserve President Neel Kashkari said Sunday that a “reasonable forecast” is that the U.S. central bank will cut interest rates once this year and wait until December to do so.
Last week, the Fed released updated projections that showed the median forecast of all 19 U.S. central bankers was for one rate cut this year.
AN EASY WEEK FOR DATA
There won’t be much on major US economic data this week to lend a hand clarify the Fed’s outlook, although US retail sales on Tuesday and flash PMIs on Friday could provide clues to consumption and economic strength.
“The data would likely need to significantly exceed estimates to reignite hopes for further Fed rate cuts while the FOMC meeting is still fresh in investors’ minds,” City Index’s Simpson said.
Sterling fell 0.1% to $1.2671. Inflation pressures in the UK still appear too high for the Bank of England to cut interest rates at its June 20 meeting, with most economists polled by Reuters forecasting the first cut will not come until August 1.
Meanwhile, the yen held near a 34-year low against the dollar after the Bank of Japan on Friday pushed through cuts to bond-purchase quotas and details of a emissions-cutting plan until its July policy meeting.
Governor Kazuo Ueda said he would not rule out raising interest rates in July as a weakening yen pushes up import costs, although it may not be as hawkish as some believed, said Hiroyuki Machida, director of Japan currency and commodities sales at Australia Banking Group and New Zealand (OTC :).
“There was a feeling that raising rates and cutting rates were two different things,” he said, saying the BOJ would decide whether to do so or not based on different criteria.
The yen weakened to 157.765, after falling to 158.26 after Friday’s decision, the lowest level since April 29.
The fall of the yen to 160.245 per dollar in delayed April triggered several rounds of official Japanese intervention totaling 9.79 trillion yen.
In cryptocurrencies, bitcoin fell 1% to $65,794, while ether fell 2% to $3,524, according to LSEG data.
