Investing.com – The U.S. dollar steadied early in the European session on Monday ahead of key inflation data, while the euro rose modestly as investors digested the results of the French parliamentary election.

At 04:25 ET (09:25 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was trading at 104.577, consolidating after falling nearly 1% last week.

Dollar stabilizes ahead of CPI release

The dollar stabilised at the start of the recent week after falling on Friday following surprisingly tender US data that fuelled speculation about an imminent interest rate cut by the Federal Reserve.

Investors now rate the probability of a rate cut at the Federal Reserve’s September meeting at about 76%, up from 64% a week ago, according to CME Group’s (NASDAQ:) FedWatch Tool.

More clues about the likely path of U.S. interest rates will emerge this week with the release of key data as well as two days of testimony by the Federal Reserve chairman before the Senate and House of Representatives.

“This week will be a hot one for the US macro economy as the June CPI report is due on Thursday. We expect the core print to come in at 0.2% month-on-month, in line with consensus, which should be enough for markets to bet on a rate cut in September,” ING analysts wrote in a note.

Euro looks at France

rose 0.1% to 1.0842, with the euro rebounding from earlier losses as investors began to consider the implications of Sunday’s second round of parliamentary elections in France.

The left-wing New Popular Front became the dominant force in the National Assembly after Sunday’s election, as a surge in support to the left prevented the far-right National Assembly from gaining power as had been expected after the first round of voting last weekend.

France, however, is currently grappling with a hung parliament, heralding a period of political instability in the eurozone’s second-largest economy.

“Our interest rates team still sees some rising risks as a hung parliament will find it difficult to implement any fiscal consolidation, and there are also risks related to a potential left-wing government,” ING added.

rose 0.1% to 1.2818, reaching levels seen for the first time since June 12, continuing the positive tone generated by the opposition Labour Party winning a clear majority in the UK general election, potentially ending 14 years of unstable rule by the Conservative Party.

“We doubt the fiscal outlook will have an impact on the pound, while political developments in France, the US macroeconomics and the Bank of England’s interest rate expectations will remain the biggest drivers of the pound,” ING said.

“BoE officials are due to start speaking in public again after a period of calm before the election. Hawkish external member Jonathan Haskel will give a speech today, while Huw Pill and Catherine Mann (another hawk) will speak on Wednesday.”

Yen retreats from 38-year low

In Asia, it rose 0.2% to 161.05, with the yen down slightly on Monday but still moving away from 38-year lows after data showed some strengthening in the economy.

Data showed average cash earnings in Japan rose at fastest pace in more than 30 years

The yuan rose slightly to 7.2702, and was trading near a seven-month low.