July 26 2024: The U.S. dollar remained steady in early European trade on Friday ahead of the release of key inflation data. Meanwhile, the euro edged higher, and the Japanese yen slipped slightly but stayed on track for its strongest week in three months.
At 04:00 ET (09:00 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, traded largely unchanged at 104.127.
Dollar Awaits PCE Data
The dollar found support from data indicating that the U.S. economy expanded faster than expected and inflation slowed in the second quarter.
This data raised hopes that the U.S. economy could achieve a soft landing, with steady growth and easing inflation.
However, the dollar’s gains were limited as U.S. macroeconomic factors are not the only influences in the foreign exchange markets.
“The fallout of the tech sell-off, frontloaded US election positioning, and the unwinding of carry trades have generated moves large enough in magnitude to overshadow U.S. data,” said analysts at ING in a note.
Friday’s focus is on the PCE price index data, due later in the session, which is expected to show further easing in inflation for June, supporting expectations for a rate cut in September.
Euro Inches Higher
In Europe, EUR/USD edged slightly higher to 1.0845, after data revealed that consumers in the eurozone stopped lowering their inflation expectations in June following four consecutive monthly declines.
The ECB’s Consumer Expectations Survey showed that the median consumer expected inflation to average 2.8% over the next 12 months, stable from May after a steady fall from 3.3% in January. The ECB cut interest rates in June and is expected to do so again in September, but policymakers would prefer these expectations to continue falling as they ease monetary policy.
GBP/USD traded 0.2% higher at 1.2870, but remained well below the one-year high of 1.3044 reached last week.
The Bank of England meets next week, and while markets are anticipating around 50 basis points of cuts this year, there is significant uncertainty over whether policymakers will agree to a rate cut then or delay until September.
Yen Awaits Next Week’s BOJ Meeting
In Asia, USD/JPY rose 0.2% to 154.25, with the yen’s recent advance somewhat stalled by soft inflation data from Tokyo, which showed that inflation remained largely muted in July.
This soft inflation reading comes just days before a Bank of Japan meeting, with analysts divided over whether the central bank will have enough room to hike interest rates by 10 basis points.
However, the yen was on track for a 2.5% rise for the week, its biggest weekly gain since late April-early May, after suspected intervention boosted the currency.
USD/CNY rose 0.3% to 7.2520, with the yuan retreating after suspected intervention by the Chinese government caused the currency to appreciate sharply against the dollar on Thursday.
