Dollar slips after dovish Powell speech; euro gains ahead of French vote

July 3, 2024 10:30 am – The U.S. dollar retreated in early European trade Wednesday after Federal Reserve Chair Jerome Powell flagged progress towards bringing down inflation, while the euro edged higher ahead of the second round of the French parliamentary vote.

At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 105.287.

Dollar slips after Powell’s dovish comments

The dollar slipped lower after comments on Tuesday from Fed head , at a conference in Portugal sponsored by the European Central Bank, reinforced expectations that U.S. interest rate cuts are not far away.

The Fed has made “significant progress” in bringing the pace of price gains back down to 2%, Powell said, noting that the labor market — a major driver of inflation — is showing signs of “cooling off,” with wage increases easing back towards “more sustainable levels.”

“As we had expected, he sounded rather upbeat on disinflation, even though he continued to warrant caution on the next policy moves,” said analysts at ING, in a note.  “Markets are now pricing in 18bp worth of easing by the Fed by September, and 45bp in total by year-end.”

The Federal Reserve is set to release later Wednesday the from its monetary policy meeting in June, when the central bank left interest rates unchanged at a more than two-decade high range and signaled that it expects to cut borrowing costs just once this year.

Politics weighs on euro

rose 0.2% to 1.0762, with the euro remaining supported, helped by data showing the crucial services component in eurozone inflation staying stubbornly high, suggesting the would take its time before cutting interest rates again. 

The ECB’s and are set to speak at the central bank’s forum in Portugal later Wednesday, while data for June in the eurozone, also due later, and are expected to remain in expansionary territory.

The euro has also been helped by the news that opponents of France’s National Rally stepped up their bid to block the far-right party from power in Sunday’s run-off election.

rose 0.1% to 1.2696, with the U.K. general election taking place on Thursday, with the opposition Labour Party widely expected to return to power.

The U.K.’s tight finances mean any new government will have little room to up spending, potentially removing a catalyst of sterling weakness and keeping volatility contained.

Yen slips to new 38-year low

In Asia, traded 0.2% higher to 161.81, with the pair hitting a near 38-year high, with Japanese officials largely remaining on the sidelines amid the risk of intervention.

Finance Minister Shunichi Suzuki stated on Tuesday that forex moves were being watched vigilantly, but stopped short of giving a clear intervention warning.

edged higher to 7.2735, with the yuan falling to a eight-month low after the lowest reading since October for the .

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