Investing.com – The U.S. dollar rose modestly on Wednesday while the euro fell after disappointing activity data from the euro zone heralded further interest rate cuts by the ECB.

At 05:25 ET (09:25 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.1% at 104.232, continuing an overnight rally.

Dollar looks to political uncertainty

The dollar benefited from volatility related to the political situation in the US.

Vice President Kamala Harris has gained powerful support from the Democratic Party after President Joe Biden endorsed her as its presidential candidate. A Reuters/Ipsos poll also showed her narrowly ahead of Republican candidate Donald Trump.

Despite this, Trump remains the favorite in the November presidential election.

“The dollar losses from the weaker June CPI report have now been erased across most USD pairs, with JPY, CHF and GBP standing out as a few key winners,” ING analysts said in a note.

“Looking at the bottom of the FX leaderboard, we feel the Trump trade remains very significant.”

Still, US inflation data for June is due out on Friday, and the Fed’s preferred inflation measure could quickly change currency market sentiment.

Euro lower after faint activity data

In Europe, the indicator fell 0.2% to 1.0835 after the release of euro zone economic activity data for July.

Growth in eurozone economic activity stalled in July, with the preliminary HCOB indicator falling to 50.1 this month from 50.9 in June, slightly above the 50-mark that separates growth from recession.

Interest rates remained at 3.75% last week, but further signs of slowing economic growth in the region point to further rate cuts this year.

Markets are pricing in the possibility of almost two ECB interest rate cuts by the end of the year.

fell 0.1% to 1.2898, down from the 1.30 level the pair hit last week for the first time in a year.

Data showed economic activity in the UK surged this month, helped by the fastest rise in industrial production in two years and the biggest inflow of fresh orders since April 2023.

The July S&P Global Flash Index rose to 52.7 from a six-month low of 52.3 in June.

Elsewhere, it rose 0.1% to 1.3796, near a three-month low for the Canadian dollar ahead of an interest rate meeting later in the session.

Markets are pricing in an 84% probability of a 25 basis point rate cut, which would be the second rate cut by the BoC in as many months.

Yen is growing stronger

In Asia, the index fell 0.5% to 154.81, hitting its lowest level since early June.

The yen’s gains extend last week’s rally, when the currency strengthened sharply on suspicions of government intervention in the currency market.

Positive purchasing managers’ index data also supported the yen as an unexpected slowdown in manufacturing activity was largely offset by a rebound in the services sector.

Now all attention turns to next week’s meeting, given the latest inflation and PMI readings that have sparked heightened speculation that the central bank will raise interest rates by 10 basis points.

rose slightly to 7.2773, approaching recent highs in November, as sentiment towards China remained gloomy amid persistent concerns about a slowdown in the country’s economic growth.