Central bank developments in Europe provided some support to the dollar on Thursday, according to Francesco Pesole, currency strategist at ING.

DXY may trade closer to 106.00

“The surprising cut in interest rates by the Swiss National Bank and the dovish stance of the Bank of England have reinforced the belief that central banks in Europe are well ahead of the Federal Reserve in terms of interest rate cuts, which is a positive development for the dollar. The hawkish revision of the guidelines of Norway’s Norges Bank went in a different direction.”

“Further easing in U.S. inflation and/or activity data is now needed to close the interest rate differential between the Fed and other central banks and ultimately trigger a fresh downtrend for the dollar. The next most significant data for markets will be the May PCE release on June 28, but some indicators of activity occurring earlier may have less impact on interest rate expectations.

“The comparison of PMIs in Europe and the US should trigger some movement in the market today, but we doubt whether it will be enough to significantly weaken the dollar at this stage, also taking into account the continuing political risks in the EU. Over the next few days, DXY may trade closer to 106.0 than 105.0.”