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Dollar slips ahead of key PCE release; euro bounces

Published 03/26/2024, 06:20 PM
© Reuters

Investing.com - The U.S. dollar edged lower in European trade Tuesday, in limited volatility after the excitement of last week’s central bank meetings and ahead of the release of key inflation data later in the week.

At 06:10 ET (10:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 103.760, suffering from a minor bout of profit-taking after hitting one-month last week.

Dollar consolidates

The greenback has seen some consolidation at the start of the week, trading in tight ranges amid a generalised calm after the central bank meetings last week and before the release of the Federal Reserve’s favorite inflation gauge this Friday.

“We had deemed last week’s dollar rally as overdone given the relatively dovish Federal Reserve message, and we are not surprised to see the greenback decline at the start of this week,” said analysts at ING, in a note.

There’s more economic data due for release Tuesday, including March’s consumer confidence data, February durable goods orders and the Richmond Fed’s manufacturing survey.

However, the trading ranges are unlikely to expand significantly ahead of the release of the Fed’s preferred inflation measure, the core personal consumption expenditures price index, which is due for release when markets are closed for Good Friday.

The Fed last week stuck with projections for three interest rate cuts this year, but added that it wanted more evidence inflation is slowing before easing.

Sterling, euro recover slightly

In Europe, EUR/USD rose 0.2% to 1.0854, helped by the minor dollar weakness, even as European Central Bank officials hinted at rate cuts, starting in the summer.

German consumer sentiment is expected to stay on its path of slow recovery in April, as the consumer sentiment index published jointly by GfK and the Nuremberg Institute for Market Decisions rose slightly heading into April, to -27.4 from a revised -28.8 in March.

“German consumer sentiment is expected to stay on its path of slow recovery in April, helped by fewer households seeing the need to save even as uncertainty about Germany's economic development still abounds, a survey showed on Tuesday.

The consumer sentiment index published jointly by GfK and the Nuremberg Institute for Market Decisions rose slightly heading into April, to -27.4 from a revised -28.8 in March.

“European Central Bank doves are continuing to reiterate the message that consensus within the Governing Council is shifting to imminent easing,” ING added.

“For this week, EUR/USD should be able to prevent much more pressure on the 1.0800 support and stabilise around or modestly above 1.0850.”

GBP/USD rose 0.2% to 1.2656, bouncing from last week's one-month low, after Bank of England Governor Andrew Bailey told the Financial Times that rate cuts "were in play" this year.

Yen remains weak

USD/JPY traded 0.1% lower at 151.29, with the pair remaining close to its highest level in four months.

Recent weakness in the yen, which came despite the Bank of Japan’s first rate hike in 17 years, spurred warnings over potential intervention by the Japanese government. The warnings, particularly comments from top Japanese currency diplomat Masato Kanda, saw the yen stabilize. 

Focus was now on upcoming consumer inflation data from Tokyo, due later in the week.

USD/CNY rose 0.1% to 7.2186, climbing to its highest level since mid-November and well above the psychologically important 7.2 level.

Recent losses in the yuan were driven by worsening sentiment over a Chinese economic recovery, while the PBOC also flagged more potential interest rate cuts to provide stimulus. Both factors bode poorly for the yuan, which is one of the worst-performing Asian currencies over the past two years.


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