By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The dollar was modestly weaker against the euro on Monday as the common currency recovered from more than a month’s lows hit last week on the back of political turmoil in Europe.
The euro rose 0.1% to $1.0718 on Monday, recovering from a six-week low of $1.066775 last week on news of early parliamentary elections in France.
European markets are under pressure after President Emmanuel Macron called for early elections after his ruling centrist party was defeated by Marine Le Pen’s Eurosceptic National Rally in the European Parliament elections.
Investors have been pondering the risk of a budget crisis in the heart of the euro zone as far-right and left-wing parties gain momentum ahead of snap parliamentary elections in France, putting pressure on Macron’s centrist government.
Le Pen tried to allay some of those fears this weekend, saying she would not call for Macron’s resignation and that she “respects the institutions,” in an interview with Le Figaro.
Even after French financial markets suffered a brutal sell-off late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters.
“As French markets have started to stabilize somewhat since last week, the euro has responded with a slight recovery,” said Helen Give, currency trader at Monex USA in Washington.
However, given that the trend remained in favor of the dollar.
“If US retail sales come in weaker than expected tomorrow, as most US data have done over the past few sessions, we could see a more substantial reversal, but the underlying dynamics for the pair at this point are very much driven by geopolitics . ,” she said.
US import prices fell in May for the first time in five months. Friday’s unexpectedly upbeat report from the Labor Department, combined with other recent data showing subdued inflation, helped keep a Federal Reserve rate cut on the table in September.
The , which compares the US currency to a basket of six others, was roughly flat at 105.52, around its highest level since May 2.
The Fed released updated projections last week showing that the average forecast of all 19 U.S. central bankers was for a single rate cut this year.
Neel Kashkari, president of the Minneapolis Federal Reserve, said on Sunday that it was a “reasonable forecast” that the US central bank would cut interest rates once this year and wait until December.
The pound fell 0.13% to $1.26715 on Monday, close to the previous session’s one-month low of $1.26575, as traders await a Bank of England policy meeting this week.
British inflationary pressures still appear too high for the Bank of England to cut rates at its June 20 meeting, with a majority of economists polled by Reuters predicting the first cut would not come until August 1.
Meanwhile, the yen remained at a 34-year low against the dollar after the Bank of Japan cut bond purchases on Friday. The dollar last rose 0.3% to 157.895 yen.
Traders remain alert for signs that Japanese authorities could intervene to support the yen.
“All fundamentals for the pair are in favor of the USD at the moment, and while some volatility remains, the overall trajectory is steadier than we saw in March and April,” said Monex’s Data.
“I expect the rhetoric from currency officials to rise around 160, but as it stands now it would cost a lot for BoJ officials to fund another intervention – at some point it may no longer be worth it “, she says. said.
