Investing.com – The U.S. dollar rebounded in early European trade on Wednesday after a selloff in the previous session, with traders keeping a wary eye on upcoming economic data for further clues about the Federal Reserve’s future monetary policy intentions.
At 04:40 ET (0840 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 105.695, having fallen 0.4% overnight to end at lowest level since April 12.
Cooling business growth hits dollar
Easing tensions in the Middle East, with Iran showing no desire to engage in all-out war with Israel after the latter struck last week, has seen the safe-haven dollar retreat from recent highs.
However, the dollar’s decline on Tuesday was largely driven by data showing a slowdown in US business growth, with activity falling to a four-month low in April.
However, comments from Federal Reserve officials lately have been largely hawkish, suggesting that this single measure is unlikely to push rate cuts into the summer.
“While activity indicators may trigger some changes in the foreign exchange market, the major revaluation of Fed expectations we saw in April can only be driven by lower inflation, weak employment figures or Fed announcements,” ING analysts said in a note.
First-quarter data on Thursday and the inflation index (the Fed’s preferred measure of inflation) on Friday could trigger larger changes.
The Fed’s first rate cut is expected to come in September, with November being the second favorite month and June now considered unlikely.
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The euro returns some of the gains from the previous session
In Europe, the index fell 0.1% to 1.0689 after rising nearly 0.5% on Tuesday after data showed the euro zone expanded at its fastest pace in nearly a year, led by a recovery in the services sector.
Sentiment in Germany, the eurozone’s largest economy, also improved in early April, with the country’s index rising to 89.4 from a revised 87.9 in the previous month.
The bank essentially promised a rate cut at its next policy meeting on June 6, but Bundesbank President Joachim Nagel said on Wednesday that this would not necessarily be followed by further policy easing if euro zone inflation proves resilient.
fell 0.1% to 1.2430, falling after rising around 0.8% in the previous session, on overnight data showing UK businesses recorded their fastest growth in almost a year.
Rates are expected to fall by at least half a percentage point this year, but good data could lead the central bank to delay its first cut until late summer.
USD/JPY within 155
In Asia, shares rose 0.1% to 154.89, trading near 34-year highs and near the 155 level.
The yen weakened even as scores of Japanese officials warned of government intervention to prop up the beleaguered currency.
The meeting will take place on Friday and rates are expected to remain unchanged after a historic hike in March. But his forecasts for inflation and economic growth will be closely watched.
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rose to 7.2460, remaining close to a five-month high, and then rose 0.3% to 0.6502, near a two-week high, after consumer inflation was stronger than expected in the first quarter, rising further above 2%. Reserve Bank of Australia to target 3% per annum.