Investing.com – The U.S. dollar steadied near its recent more than four-month high in European trade on Tuesday as strong economic data dented expectations of an imminent Federal Reserve rate cut.
At 05:40 ET (1040 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading little changed at 104.755, just off the previous session’s high of 105.07, its highest level since mid November. last year.
The dollar strengthened amid expectations of a rate cut
The dollar strengthened on Monday after data showed the first increase in US manufacturing since September 2022.
Further signs of US economic strength led traders to curb expectations that the Federal Reserve would cut interest rates soon, supporting the dollar.
The FedWatch CME tool now puts the Fed’s June rate cut at 61.3%, up from about 70.1% a week ago.
There’s more economic data to digest on Tuesday, including February ahead of Friday’s widely watched March payrolls report.
“Looking ahead, there are plenty of Fed speakers speaking this week. Given the direction of US data lately, it is difficult to expect any renewed peace-loving behavior on its part,” ING analysts said in a note.
“Markets are expecting slightly lower JOLTS job openings today,” ING added. “We view this data as a potential market driver that, if soft, could reverse some of the dollar’s gains seen late last week.”
Sterling rises on strong manufacturing data
In Europe, the index fell 0.1% to 1.0738, falling after euro zone manufacturing activity worsened in March, contracting at a faster pace than in February.
S&P Global’s final HCOB index fell to 46.1 in March from February’s 46.5, beating the preliminary estimate of 45.7 but remaining below the 50 mark that marks the 21st month of activity.
“The two-year difference in euro:dollar swap rates is now 145 bps. in favor of the dollar. These are the most favorable conditions for the dollar exchange rate since December 2022,” ING said. “It is not surprising that the EUR/USD pair is trading comfortably below the 1.0800 level. The 1.0695/1.0700 lows seen in mid-February are now the obvious short-term target.”
rose 0.2% to 1.2569, recovering from recent losses after British manufacturers reported their first overall increase in activity in 20 months in March, indicating that last year’s shallow recession is over.
The S&P Global/CIPS index rose to 50.3, up from the preliminary March reading of 49.9 and higher than the 47.5 reading in February. The last time this index exceeded the 50th growth threshold was in July 2022.
Yen remains under intervention watch
was trading 0.1% higher at 151.68, just below the 151.80 level seen earlier in the session, its weakest since hitting a 34-year low of 151.975 last week.
Finance Minister Shunichi Suzuki confirmed earlier on Tuesday that he was not ruling out any options to respond to the currency’s erratic movements.
Japanese authorities entered the foreign exchange market three times in 2022, selling the dollar to buy the yen: first in September and then in October, when the yen fell to 152 per dollar.
rose 0.1% to 7.2358, with the yuan falling to a 4.5-month low against the dollar, offsetting sales of the US currency by state-owned banks.