The dollar fell against the euro on Monday, as the common currency recovered from more than a month-long lows hit last week amid political turmoil in Europe.
The euro rose 0.25% to $1.07305 on Monday, after hitting a six-week low of $1.066775 last week following news of early parliamentary elections in France.
European markets have been under pressure after President Emmanuel Macron called early elections after his ruling centrist party was defeated by Marine Le Pen’s eurosceptic National Rally in the European Parliament election.
Investors have been eyeing the risk of a budget crisis in the heart of the euro zone, as far-right and far-left parties gain momentum ahead of French elections, putting pressure on Macron’s centrist administration.
Le Pen tried to allay some of those fears over the weekend, saying she would not call for Macron to resign and that she is “respectful of 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 a bit since last week, the euro has responded with a slight hint of recovery,” said Helen Given, currency trader at Monex USA in Washington.
But Given said the trend remained favorable to the dollar.
“If US retail sales are weaker than expected tomorrow, as most US data has been in recent sessions, we could see a more substantial turnaround, but the underlying dynamics for the is largely driven by geopolitics right now,” he said.
US import prices fell in May for the first time in five months. The Labor Department’s unexpectedly benign report on Friday, combined with other recent data showing tame inflation readings, has helped keep a September interest rate cut by the Federal Reserve on the table.
The dollar index, which tracks the U.S. currency against a basket of six currencies, was 0.2% lower at 105.35.
The Federal Reserve last week released updated forecasts showing that the median forecast among 19 U.S. central bankers was for a single interest rate cut this year.
Philadelphia Fed President Patrick Harker said Monday that if his economic forecasts come true, the Federal Reserve could cut its benchmark interest rate once this year.
The pound rose 0.15% to $1.2707 on Monday, although it remained near the one-month low of $1.26575 hit in the previous session, as traders await a Bank of England policy meeting this week. week.
British inflation pressures still appear too hot for the Bank of England to cut rates at its meeting on Thursday, with most economists polled by Reuters predicting the first cut will not come until August 1.
The yen remained stuck near a 34-year low against the dollar after the Bank of Japan pushed through cuts in bond purchase amounts on Friday. The dollar was last up 0.2% at 157.73 yen.
Traders remain vigilant for signs that Japanese authorities may intervene to support the yen.
“All the fundamentals of the pair are in favor of the dollar right now, and although there is still some volatility, the overall trajectory has been more stable than what we saw in March and April,” said Monex’s Given.
“I would expect to see the rhetoric from currency officials heat up around the 160 mark, but as things stand now, it would take a lot for Bank of Japan officials to finance another intervention; at some point , it may not be worth it anymore,” he said.
The Mexican peso fell 0.4% on Monday on concerns about the consequences of judicial reforms proposed by President-elect Claudia Sheinbaum, while other Latin American currencies weakened as US Treasury yields rose on data stronger than expected.
