Investing.com – The U.S. dollar posted a miniature gain early in the European session on Tuesday, bouncing off a one-month low just ahead of Federal Reserve Chairman Jerome Powell’s testimony before the Senate, while the euro held its ground despite political volatility in France.

At 04:45 ET (08:45 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.1% to 104.737, slightly above an overnight low of 104.622.

Dollar bounces ahead of Powell’s testimony

The dollar posted a miniature gain Tuesday but remains lower after Friday’s weakness and ahead of Chairman Powell’s two days of congressional testimony, which begins Tuesday before the Senate and then Wednesday before the House of Representatives.

Certainty is growing that the Fed will approve its first rate cut of the cycle in September. Investors now predict a 76% chance of a rate cut at that time, up from 66% a week ago, according to CME Group’s (NASDAQ:) FedWatch tool.

“We maintain the view that if there is any departure from the recent narrative, it should be dovish, as Powell may view the June Dot Plot revisions as too hawkish and may want to refine his messaging based on recent data,” ING analysts said in a note.

More clues on the likely path of US interest rates will emerge this week with the release of key data on Thursday.

French policy will be the driving force of the euro

fell slightly to 1.0819, not far from Monday’s near four-week peak of 1.0845. The single currency also fell to 1.0791 on the same day on volatile trading.

Businesses are still coming to terms with the fallout from Sunday’s second round of French parliamentary elections, which have left the country facing a hung parliament and tough negotiations to form a government.

France’s hung parliament is likely to complicate political decision-making, S&P Global said on Monday, warning that rising debt or a prolonged slump in economic growth could result in another ratings downgrade.

At the end of May, the rating agency downgraded France’s credit rating.

“The negotiations are likely to prove anything but easy for President Emmanuel Macron, and markets could become impatient. A renewed widening of the OAT-Bund spread remains a tangible risk, and we expect EUR/USD to moderate its upside in the near term,” ING said.

The rate was virtually unchanged at 1.2805, after rising to 1.2845 on Monday, its highest since June 12.

That day, a Bank of England official said it wanted to keep interest rates unchanged as inflationary pressures persisted in the labour market.

The next meeting of the Bank of England will be in early August.

Yen remains frail

In Asia, the yen rose 0.1% to 161.01, still under pressure as a series of frail economic data from Japan bolstered bets that the Bank of Japan will have confined room to manoeuvre in further interest rate hikes.

The yuan rose 0.1% to 7.2722, with the yuan holding near a seven-month low, weighed down by growing concerns about a trade war with the West.