What’s going on here?
The US dollar dipped 0.2% to 105.35 against a basket of six major currencies, while the euro gained 0.25% to $1.07305 after overcoming a six-week low.
What does this mean?
The dollar’s decline comes amid European political upheaval. French President Macron called for a snap parliamentary election after his party lost to Marine Le Pen’s National Rally in European Parliament elections, causing initial market jitters. Le Pen’s reassurance that she wouldn’t seek Macron’s resignation helped calm nerves. Meanwhile, the European Central Bank (ECB) isn’t planning emergency bond purchases, showing confidence. Even though the euro recovered, an FX trader at Monex USA notes the dollar is still preferred. However, weaker-than-expected US retail sales or other economic data could change this.
Why should I care?
For markets: Navigating geopolitical tensions.
US import prices fell in May for the first time in five months, contributing to a subdued inflation outlook. This, along with other mild inflation data, keeps the chance of a September rate cut by the Fed alive. The Fed’s latest projections suggest one rate cut this year. Philadelphia Fed President Patrick Harker hinted that, based on his forecast, one rate cut might happen. Across the pond, the British pound rose 0.15% to $1.2707 but stayed close to a month-low, as traders await the Bank of England’s policy meeting.
The bigger picture: Global economic shifts on the horizon.
The yen is near a 34-year low against the dollar due to the Bank of Japan’s recent bond-buying decisions. With the dollar rising 0.2% to 157.73 yen, traders are watching for possible Japanese interventions, though significant action is unlikely unless the yen hits 160 to the dollar. In Latin America, the Mexican peso dropped 0.4% amid concerns over the President-elect’s judicial reforms. Regional currency weakness ties to rising US Treasury yields bolstered by strong economic data, indicating continued USD strength amid geopolitical factors.
