Home Economy News Dollar droops before Powell testimony; euro firm after French vote

Dollar droops before Powell testimony; euro firm after French vote

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By Kevin Buckland

TOKYO (Reuters) -The U.S. dollar hung near its lowest in almost a month versus major peers on Tuesday, still smarting from Friday’s unexpectedly soft jobs report as traders awaited testimony from Federal Reserve Chair Jerome Powell for clues on the path of interest rates.

The euro held its ground after Monday’s sharp swings as investors come to terms with a hung parliament in France, which points to potential political gridlock but lessens fiscal concerns stemming from outright far-right or leftist victories.

The U.S. dollar index, which measures the currency against the euro, sterling, yen and three other major peers, was flat at 104.99, sticking close to the overnight low of 104.80, a 3 1/2-week trough.

The index slumped 0.9% last week, exacerbated by Friday’s monthly payrolls report, which boosted bets for the Fed to soon start cutting rates.

Traders currently see about a 76% chance of a rate cut at the September meeting, up from 66% a week ago, according to the CME Group’s (NASDAQ:CME) FedWatch Tool. Another cut is expected by December.

Chair Powell gives two days of testimony before Congress, beginning later on Tuesday with the Senate and followed by the House on Wednesday.

Consumer price data on Thursday could also be crucial, market watchers said, with recent numbers showing a cooling from unexpectedly high levels at the start of the year.

“All ears will be on how Powell communicates the risks between stubborn inflation and unnecessary labour market deterioration,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY), who expects the U.S. dollar to decline over the longer term.

Meanwhile, markets have taken “a fairly sanguine view” of the French poll results, Attrill added, “viewing political gridlock – and with that a high degree of fiscal policy inertia – as the most likely way forward for France, a more benign scenario than any of the alternatives.”

The euro edged up 0.06% to $1.08295, not far from Monday’s nearly four-week peak of $1.0845. The single currency also dipped as low as $1.07915 that same day.

Sterling traded flat at $1.2809, after rising as high as $1.28455 on Monday, its strongest since June 12.

Bank of England policymaker Jonathan Haskel said that day he wanted to keep interest rates on hold as inflation pressures remained in the jobs market.

Traders currently see a 61% chance of the BoE cutting rates on Aug. 1 – odds that Commonwealth Bank of Australia (OTC:CMWAY) analysts view as too high.

“We have high confidence that interest rates will be left unchanged in August,” said senior currency strategist Kristina Clifton.

“We favour a later start to the rate cutting cycle in September because there is uncertainty around the strength of the labour market, and services inflation is still very high.”

The yen was little changed at 160.945 per dollar, finding some equilibrium this week after rebounding from Wednesday’s nearly 38-year trough of 161.96.

The currency has found little succour in increased speculation the Bank of Japan may raise rates again on July 31, following the first hike since 2007 in March.

Japan’s central bank is also due to announce a plan for quantitative tightening at its month-end policy meeting. It began two days of meetings with bond market participants on Tuesday about how to proceed without riling markets.

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