The U.S. dollar saw an upward trend in early European trade on Monday, driven by positive job report data and expectations of the Federal Reserve maintaining a hawkish stance. The Dollar Index, which measures the greenback against a basket of other currencies, traded 0.2% higher at 104.200, reaching its highest level in nearly three months.
The strong U.S. jobs figures have contributed to the dollar’s strength, leading to a surge in U.S. Treasury yields. The robust labor market, along with higher-than-expected inflation data released by the Federal Reserve in May, suggests that the central bank will keep interest rates elevated for an extended period.
With the upcoming Federal Reserve meeting, the likelihood of another rate increase is increasing, particularly due to the positive outlook for the U.S. economy following Congress’s approval of a debt ceiling deal. This deal has alleviated concerns about a potential U.S. default, further bolstering expectations of a favorable economic outcome.
Although the Federal Reserve enters its traditional blackout period this week, there are other economic indicators to consider. The ISM services PMI, scheduled for release later on Monday, is expected to indicate a steady pace of expansion.
In contrast, the euro weakened against the dollar, with the EUR/USD pair falling 0.2% to 1.0692. This decline follows a 0.5% decrease in the previous session, influenced by reduced expectations for tighter monetary policy from the European Central Bank (ECB) due to lower-than-expected eurozone CPI figures. ECB President Christine Lagarde has emphasized the need for further interest rate hikes but other ECB officials have expressed more cautious views.
Lagarde’s upcoming speech before the Committee on Economic and Monetary Affairs will be closely monitored, as will the release of the May eurozone producer price figures.
The British pound also experienced a decline against the dollar, as GBP/USD fell 0.4% to 1.2407. The release of services PMI data for May is expected to confirm the strength of the UK’s service sector, which may provide further insight into the currency’s performance.
Meanwhile, the yen weakened against the dollar, as USD/JPY rose 0.3% to 140.38. The passing of the U.S. debt ceiling bill diminished the demand for safe-haven assets, contributing to the yen’s decline. Additionally, the Australian dollar depreciated against the dollar, with AUD/USD falling 0.4% to 0.6591, ahead of the Reserve Bank of Australia’s meeting. The central bank is anticipated to maintain steady interest rates, despite unexpected inflation growth in April.
The Chinese yuan also faced pressure, as USD/CNY rose 0.5% to 7.1190, approaching a six-month high. Market focus this week centers on Chinese trade and inflation data, which will provide further insights into Asia’s largest economy.
Lastly, the Turkish lira experienced a slight increase against the dollar, with USD/TRY rising 0.5% to 21.1400. This movement follows an uncertain market reaction to the appointment of Mehmet Şimşek as finance minister, a highly regarded figure in Turkey.
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