Investing.com - The U.S. dollar steadied in early European trade Monday ahead of key inflation data, while the euro edged higher as traders digested the results of the French parliamentary elections.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely flat at 104.577, consolidating after a near 1% slump last week.
Dollar stabilizes ahead of CPI release
The dollar has stabilized at the start of the new week after being on the back foot following surprisingly soft U.S. payrolls data on Friday, which boosted bets for the Federal Reserve to soon start cutting interest rates.
Traders currently set about 76% odds for a rate cut at the Fed's September meeting, up from 64% a week ago, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
There will be more clues over the likely path of U.S. interest rates this week, with the release of key consumer inflation data as well as a two-day testimony by Federal Reserve Chair Jerome Powell before both the Senate and the House of Representatives.
“This week will be a hot one for U.S. macro, with the CPI report for June out on Thursday. We expect the core print at 0.2% month-on-month, in line with consensus, which should be enough to keep markets betting on a September rate cut,” said analysts at ING, in a note.
Euro looks to France
EUR/USD rose 0.1% to 1.0842, with the euro bouncing from early losses as traders digested the implications of Sunday’s second round of parliamentary elections in France.
The left-leaning New Popular Front emerged as the dominant force in the National Assembly after Sunday's election, as a surge to the left prevented the far-right National Rally from gaining power as had been expected after the first round of elections the previous weekend.
However, France now faces a hung parliament, heralding a period of political instability in the eurozone’s second-largest economy.
“Our rates team still sees some rewidening risks as a hung parliament will struggle to deliver any fiscal consolidation and there are some risks related to a potential left-wing government,” added ING.
GBP/USD rose 0.1% to 1.2818, climbing to levels seen for the first time since June 12, continuing the positive tone generated by the opposition Labour Party winning a massive majority in the U.K. general election, potentially ending the volatile 14-year rule of the Conservative Party.
“We doubt that fiscal prospects will have an impact on the pound just yet, while developments in French politics, US macro and Bank of England rate expectations will remain the largest GBP drivers,” ING said.
“BoE officials are due to start speaking publicly again following a quiet period before the election, with hawkish external member Jonathan Haskel delivering remarks today, and Huw Pill and Catherine Mann (another hawk) speaking on Wednesday.”
Yen moves away from 38-year low
In Asia, USD/JPY traded 0.2% higher to 161.05, with the yen edging lower Monday but still pulling away further from its weakest levels in 38 years after data pointed to some strengthening in the economy.
Data showed Japanese average cash earnings grew at their fastest pace in over 30 years in
USD/CNY traded marginally higher to 7.2702, with the yuan hovering around seven-month lows.