May 27 2024: Most European and Asian currencies were largely stable on Monday, while the dollar remained steady in light trading as markets awaited crucial U.S. inflation data later in the week. Trading volumes were subdued due to market holidays in the U.S. and the U.K.
Dollar Holds Steady Ahead of PCE Inflation Data The dollar index, which tracks the currency against a basket of its peers, and dollar index futures were mostly unchanged in European trade. The greenback had recently gained strength as traders revised their expectations for future rate cuts by the Federal Reserve. Policymakers have cast doubts on the sustainability of a slowdown in U.S. inflation, leading to increased bets that the Fed might maintain high rates for an extended period, according to the CME Group’s Fedwatch Tool. Traders are now focusing on the personal consumption expenditures (PCE) price index data, the Fed’s preferred inflation gauge, due on Friday.
Euro Stays Flat as ECB Decision Approaches The euro remained near the flatline against the dollar, edging up about 0.1% to $1.0850 by 04:11 ET (08:11 GMT). Euro zone inflation data, set to be released later this week, could influence the European Central Bank’s (ECB) future rate decisions. Economists expect May’s inflation to rise at a slightly faster annual rate than the previous month. Markets widely anticipate the ECB will cut its key deposit rate by 25 basis points at its June meeting. ECB Chief Economist Philip Lane indicated in an interview with the Financial Times that there is enough evidence to justify easing the top level of restrictions.
British Pound and Japanese Yen Movements The British pound remained steady against the dollar at $1.2740. In Asia, the Japanese yen firmed slightly, with the USD/JPY pair dipping marginally as traders positioned for potential government intervention to support the currency. Previous intervention by the Japanese government during a holiday on May 1 had caused significant movement in the USD/JPY pair, although it has since regained most of those losses. Key inflation data from Tokyo, as well as industrial production and retail sales readings, are due later this week.
Muted Movements in Other Asian Currencies Other Asian currencies showed limited movement. The Australian dollar’s AUD/USD pair inched up, while the Chinese yuan’s USD/CNY pair rose slightly after a stronger-than-expected midpoint fix. Chinese industrial profits data showed growth in April. The South Korean won’s USD/KRW pair fell slightly, while the Singapore dollar’s USD/SGD pair remained mostly unchanged. The Indian rupee’s USD/INR pair was also broadly stable following a recent sharp drop from record highs over the past two weeks.
