Investing.com – The U.S. dollar rose on Monday, moving away from a one-year low hit last week, as disappointing economic activity data weighed on the euro.

At 04:15 ET (08:15 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.5% at 100.925, just above a 12-month low.

Dollar looks towards PCE release

The US dollar has recovered some of its losses following a sell-off following last week’s significant interest rate cut, with investors now apparently writing off the risk of a US recession.

“So far, investors have bought into the soft-landing narrative that CEO Jerome Powell put forth last week,” ING analysts wrote in a note. “And instead of a 50-basis-point rate cut spooking stock markets, key metrics have continued to rise.”

Still, Fed futures traders are currently pricing in a 75 basis point rate cut by the end of this year and a cut of almost 200 basis points by December 2025, according to CME FedWatch.

The week’s most crucial economic data will be released on Friday, in the form of the Fed’s preferred inflation gauge.

Analysts are expecting a 0.2% month-on-month raise, which would imply an annual raise of 2.7%, while the main index is expected to be just 2.3%.

“Core PCE at 0.1% on Friday could potentially trigger another cut in US interest rates and the dollar,” ING added.

Euro hit by PMI data

In Europe, the index fell 0.5% to 1.1111 after data showed economic activity in Germany contracted at its fastest pace in seven months in September, suggesting Europe’s largest economy had entered recession.

The index, compiled by S&P Global, fell to 47.2 from 48.4 in August and was lower than the forecast of 48.2.

The second rate cut this year earlier last week and further signs of economic weakness could raise the possibility of another rate cut in October.

“This is not a good environment for the euro, nor for EUR/USD to break above the main resistance at 1.12. Further consolidation of EUR/USD in the 1.11-1.12 range seems likely, with downside risks early this week,” ING said.

fell 0.4% to 1.3264, giving back some of the pair’s recent gains after it hit its highest level since March 2022 last week.

The key interest rate was kept at 5% on Thursday, after starting to ease monetary policy with a 25 basis point cut in August.

“There is a sense that long sterling positions are quite extreme,” ING said. “However, the latest CFTC data released last Friday and covering activity up to Tuesday (September 17) actually showed a fairly large reduction in long sterling positions from the speculative community.”

Yuan falls slightly after PBOC cut

The exchange rate rose 0.1% to 7.0595 and the yuan weakened after the People’s Bank of China cut its 14-day repo rate to further ease monetary conditions and support economic growth.

fell 0.1% to 143.72, with regional trading volumes low due to a holiday in the Japanese market, although the yen remains close to its 2024 highs.

Interest rates were kept unchanged last week and the government said it expected inflation and economic growth to continue to rise steadily.