Investing.com – The U.S. dollar slipped in early European trade on Friday but was still on track for its biggest weekly gain in more than a month as expectations for an early rate cut by the Federal Reserve faded.
At 04:40 ET (0840 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 104.910, but was expected to gain 0.6 this week %, the largest indicator. weekly growth since mid-April.
The dollar strengthened amid expectations of a rate cut
Data released Thursday showed U.S. business activity accelerated in May to its highest level in just over two years, pushing back expectations for a U.S. interest rate cut and pushing Treasury yields higher.
That followed a Fed meeting in late April that showed policymakers increasingly concerned about persistent inflation, adding weight to comments from numerous officials advocating caution on monetary easing.
CME’s Fedwatch tool showed that in September traders were estimating a nearly equal chance of a rate cut and a hold at about 46%, after earlier forecasts showed a more than 50% chance of a rate cut.
The next data release will likely be May 31, the Fed’s preferred inflation gauge.
This will likely provide further hints as to whether the bank could begin cutting interest rates later this year.
Sterling falls after weak UK retail sales
In Europe, the index fell to 1.2696 after data showed Britain’s index fell more than expected in April, falling 2.3% month-on-month as wet weather kept shoppers away from clothing and sports stores.
“Markets are forecasting monetary policy easing of only 33 bps. by the end of the year and by less than 10 bp. for the August meeting. We continue to expect a rate cut in August and consider any view of delaying policy easing due to the UK vote to be misplaced,” ING analysts said in a note.
traded 0.1% higher at 1.0821 after rising 0.2% in the first three months of 2024, the statistics office said on Friday, confirming preliminary data.
“After a fall in GDP at the end of 2023, the German economy started 2024 with positive growth,” said Ruth Brand, president of the statistics office.
“Given the risk of higher inflation in the eurozone and the fact that markets have recently shown a tendency to look on the brighter side of US price movements, some bullish sentiment in EUR/USD could return in the coming days. A return to 1.0900 seems more likely than a fall to 1.0700 in the near future,” ING said.
A cycle of rate cuts is expected to begin next month.
The yen climbs to a nearly three-week high
In Asia, the pair rose 0.1% to 157.07, with the pair rising to a more than three-week high, extending its rebound from immediate post-government intervention lows seen earlier in May.
The yen received little relief from consumer price index data, which showed inflation fell as expected in April as spending remained weak.
traded 0.1% higher at 7.2448, close to a six-month high, with further yuan weakness capped by a substantially stronger midpoint fix from the People’s Bank of China.
The stronger improvement comes as a escalating trade war with the US, doubts over additional stimulus measures and rising tensions with Taiwan have led to a wave of pressure on the yuan.