Investing.com – The U.S. dollar rose in early European trading on Friday, tracking its second straight quarterly gain, while the euro fell and the Japanese yen remained under intervention watch.
At 04:00 ET (09:00 GMT), the index, which tracks the US dollar against a basket of six other currencies, was up 0.1% at 105.705, heading for a 1.5% gain in the second quarter.
Dollar gains after debate; PCE data coming soon
The dollar is in demand and will post its second consecutive quarterly gain as markets have lowered expectations for US interest rate cuts over the past six months.
The dollar index is up just under 5% this year.
Still, the Federal Reserve’s preferred measure of inflation, the (PCE) index, is scheduled to be released later in the session and is expected to show a slowdown in annual economic growth to 2.6% in May.
While that would still be above the Federal Reserve’s medium-term target of 2%, it could open the door to cuts later this year.
“The market is not fully pricing in the first Fed rate cut until November, so there should be room for a decline in U.S. short-term rates as attention shifts more to a rate cut in September,” ING analysts said in a note.
The dollar was also helped by President Joe Biden’s disappointing performance in the first presidential debate, which took place delayed on Thursday evening, which increased the chances of Republican candidate Donald Trump to win the November elections.
“We see a potential Trump administration as more positive for the dollar through both looser fiscal policy and a more aggressive trade/tariff environment,” ING said.
Politics weighs on the euro
rose slightly to 1.2641, helped by data showing it was up 0.7% in the first three months of this year from the previous quarter, exceeding the initial estimate of growth of 0.6%.
On an annualized basis, gross domestic product in the first quarter was only 0.3% higher than a year earlier and exceeded the initial estimate of 0.2%.
“Encouragingly, consumption appeared to be the biggest driver here,” ING said. “However, we still forecast that the Bank of England will start cutting interest rates in August and will start signaling this in speeches after the general election on July 4.”
fell 0.1% to 1.0695, with the euro weighed down by growing political uncertainty ahead of the start of elections in France this weekend.
The latest opinion poll published on Friday in Les Echos newspaper showed that support for the far-right French party National Rally has increased further and could reach as much as 37 percent of the vote.
“The question for the market is whether the Le Pen government will look at the French bond market and start abandoning some of its plans for apparently unfunded tax cuts, or press on,” ING added.
Elsewhere, the indicator rose more than expected in June, reaching a seasonally adjusted 19,000, above the expected 15,000.
USD/JPY briefly exceeds 161
In Asia, the rate rose 0.1% to 160.95, after briefly surpassing 161.00 earlier in the session.
The pair was now well above the levels that triggered government intervention in May. While officials maintained their verbal warnings, movement in USD/JPY suggested that no actual intervention had taken place so far.
also showed a compact augment in inflation. While headline inflation rose, core inflation remained well below the Bank of Japan’s annual target of 2%.
Weak inflation data has heightened doubts about how much room for maneuver the Bank of Japan has to tighten monetary policy, a key factor behind the recent weakening of the yen.
fell slightly to 7.2660, remaining close to its highest level since November. Attention now turns to key data due over the weekend.
