Apr 23 2024: early European trading on Tuesday, the U.S. dollar stabilized while the euro saw an uptick following positive Eurozone Purchasing Managers’ Index (PMI) data for April.
At 05:25 ET (09:25 GMT), the Dollar Index, measuring the dollar against a basket of six major currencies, remained unchanged at 105.915, just below the five-month high recorded last week.
Dollar Retreats as Safe-Haven Demand Eases
The dollar’s retreat can be attributed to reduced tensions in the Middle East, with Iranian Foreign Minister Hossein Amirabdollahian indicating no intention of retaliating against Israel’s recent strike. This easing of geopolitical tensions led traders to book profits on safe-haven dollar positions.
Despite this retreat, the dollar remains robust due to strong economic data and hawkish remarks from Federal Reserve officials, causing traders to reassess expectations of rate cuts in the coming months.
According to the CME FedWatch Tool, there is a 46% chance of the Fed’s first rate cut in September, with November at 42%, while June is seen as highly unlikely.
Key economic data releases on Tuesday include March’s new home sales and April’s manufacturing and services PMI data from S&P Global. However, the main focus will be on Thursday’s first-quarter gross domestic product (GDP) data and Friday’s personal consumption expenditures index (PCE), the Fed’s preferred measure of inflation.
Euro Strengthens on Positive PMI Data
The EUR/USD pair edged up by 0.1% to 1.0664 following encouraging eurozone PMI data, indicating accelerated business activity growth this month.
S&P Global’s composite PMI for the eurozone rose to 51.4 from March’s 50.3, signaling expansion above the 50 level. The services PMI also surged to 52.9 from last month’s 51.5, offsetting the decline in the manufacturing PMI.
Despite this positive data, expectations of interest rate cuts by the European Central Bank (ECB) before the Fed are likely to limit the euro’s gains.
GBP/USD also saw a 0.1% increase to 1.2359, supported by strong British business activity data for April, indicating a rebound from last year’s recession. The Bank of England is anticipated to lower rates this year, with the first cut expected in June or August.
Yen Awaits BOJ Meeting
USD/JPY declined to 154.81, near its recent 34-year highs above 155, prompting speculation about potential Japanese government intervention in currency markets. The Bank of Japan’s policy-setting meeting on Friday is expected to maintain rates after a March hike.
USD/CNY edged up by 0.1% to 7.2469, remaining close to five-month highs above the critical 7.2 level.
