Investing.com – The U.S. dollar was trading little changed on Monday as tensions in the Middle East eased and ahead of the release of the Federal Reserve’s favorite inflation gauge later this week.
At 05:40 ET (0940 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was trading at 106.005, retreating from a five-month peak of 106.51 seen last week.
Dollar stable ahead of key inflation report
The dollar rose to a new high last week after Israel launched a missile attack on Iran, escalating conflict in the volatile Middle East.
However, tensions appeared to have eased, with Tehran downplaying a retaliatory Israeli drone strike on Iran in what appeared to be a move aimed at averting a regional war.
“Sentiment is broadly supportive across all asset classes at the start of the week,” ING analysts said in a note. “It appears that all parties concerned have chosen to downplay the scale and impact of Friday’s Israeli strikes on Iran.”
However, the dollar has also received support from strong US economic data and persistent inflation coupled with plenty of hawkish commentary from Fed officials, reducing the chances of the Fed cutting rates anytime soon.
Those officials will remain tight-lipped this week ahead of next week’s inflation figure, but activity is likely to be limited ahead of Friday’s survey of the inflation index, the Federal Reserve’s favorite gauge that economists expect will remain elevated in March.
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Other economic data for the week included the initial estimate for the first quarter, which is expected to be down slightly from the previous quarter. Index data will also be published along with revised data on consumer sentiment and inflation expectations.
The euro is growing, but the ECB is going to cut rates ahead of schedule
In Europe, the index rose 0.1% to 1.0656, trading near a six-month low, and regional economic weakness could lead the European Central Bank to cut interest rates before the Federal Reserve.
Heightened tensions in the Middle East are unlikely to lead to higher energy prices and should not affect the European Central Bank’s plans to start cutting interest rates in June, French central bank governor Francois Villeroy de Gallo said on Sunday.
“Barring surprises, we won’t have to wait much longer,” Villeroy told business newspaper Les Echos. “At the moment, the conflict does not lead to a noticeable increase in oil prices. If that were ever the case, we would have to review monetary policy to see whether the shock is temporary and limited, or whether it extends beyond commodities to core inflation.”
edged 0.1% lower to 1.2355, just above the lowest level since mid-November recorded on Friday, after Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden mentioned slowing UK inflation last week. as expected.
“Pound markets moved on Friday after Bank of England Deputy Governor Dave Ramsden expressed less concern about price pressures and suggested there were signs that UK inflation was converging with eurozone inflation,” ING said. “Importantly, he added that the Bank will ‘react’ as inflation data accumulates.”
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Yen weakens ahead of Bank of Japan meeting
In Asia, shares were trading 0.1% higher at 154.74, remaining well above the 154 level and near 34-year highs, leaving investors wary of any potential government intervention.
This week’s focus will be on the Bank of Japan’s rate decision on Friday, the central bank’s first meeting since its historic rate hike in March. Any signals of future rate increases and policy changes will be closely monitored.
rose 0.1% to 7.2437 after the People’s Bank of China left its benchmark unchanged as expected.
The LPR remained at record lows as the PBOC tried to keep monetary policy as loose as possible to support economic growth. However, low interest rates are also expected to keep the yuan under pressure.
USDCNY was close to a five-month high, above the psychologically important 7.2 level.