The dollar started the week steadily on Monday as investors turned their attention to upcoming inflation data from the United States, Europe, and Japan to gauge the global interest rate outlook.
In recent months, foreign exchange trading has been primarily driven by the pursuit of “carry,” penalizing low-rate currencies and bolstering the dollar. This trend has persisted amid mixed U.S. data, which has undermined policymakers’ confidence in the rates outlook.
Several major currency pairs have remained within tight ranges. The euro, which gained 0.9% against the dollar last week, hovered around $1.0846, maintaining a range it has held for over a year. Trading activity on Monday was subdued due to holidays in Britain and the United States.
Investors are closely monitoring German inflation data on Wednesday and euro zone readings on Friday for confirmation of a potential European rate cut expected next week.
Sterling tested the upper end of its range for the year at $1.2735, while the Australian and New Zealand dollars retreated from recent highs, with the Aussie at $0.6637 and the kiwi at $0.6122. This pullback came as markets scaled back expectations of U.S. interest rate cuts.
Friday’s release of the core personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, is anticipated to remain steady month-on-month.
Despite a slowdown in consumer price increases in April, the dollar had weakened, but overall inflation and its indicators continue to exceed the Fed’s 2% target.
Amid ongoing uncertainty about interest rates, investors have been pursuing yield and selling low-yielding currencies such as the yen, yuan, and Swiss franc against the euro and dollar.
The Swiss franc has been declining throughout the year, reaching its lowest level since April 2023 last week. China’s yuan also weakened, closing below 7.24 per dollar, its lowest level since early May.
While the yen may register its first monthly gain of the year, it has been slipping back since suspected intervention by Japanese authorities in late April and early May.
Cryptocurrency markets saw ether post its largest weekly gain in nearly three years following the unexpected approval of some U.S. exchange-traded fund (ETF) applications. Although further approvals are needed, ether rose 25% against the dollar last week and another 5% to $3,938 in Asia trade on Monday.
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