Investing.com – The U.S. dollar steadied in early European trading Tuesday, while a bounce in European services activity data in April helped the euro.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 105.915, below the five-month peak seen last week.
Safe-haven dollar retreats
The easing of tensions in the Middle East, with Iranian Foreign Minister Hossein Amirabdollahian indicating that the Islamic Republic doesn’t intend to retaliate against Israel for the latter’s strike last week, has seen traders take profits on recent gains from the safe-haven dollar.
That said, the greenback remains elevated after a run of stronger-than-expected economic data, accompanied by hawkish comments from Federal Reserve officials, have forced traders to pare back expectations of rate cuts in the summer.
Markets are pricing in a 46% chance of the Fed’s first rate cut starting in September, according to the CME FedWatch Tool, with November at 42%, and June now deemed very unlikely.
Economic data due Tuesday includes new home sales for March as well as both manufacturing and services PMI data from S&P Global for April.
However, the main focus will be on first-quarter gross domestic product data on Thursday and the personal consumption price expenditures index, the Fed’s preferred measure of inflation, on Friday.
Euro helped by strong eurozone PMI data
In Europe, EUR/USD rose 0.1% to 1.0664, helped by data showing overall business activity in the eurozone expanded at its fastest pace in nearly a year this month.
The bloc’s composite Purchasing Managers’ Index, compiled by S&P Global, bounced to 51.4 this month from March’s 50.3, marking its second month above the 50 level separating growth from contraction.
The services PMI soared to 52.9 from last month’s 51.5, making up for the drop in the manufacturing PMI to 45.6 from 46.1.
Despite this bounce in activity data, the European Central Bank is still expected to cut interest rates before the Federal Reserve, weighing on the euro.
GBP/USD climbed 0.1% to 1.2359, helped by data showing the fastest growth in British business activity in nearly a year this month, suggesting a rebound from last year’s shallow recession.
The S&P Global UK Composite Purchasing Managers’ Index for the services and manufacturing sectors jumped to an 11-month high of 54.0 in April from March’s 52.8, led by a rise in the services index to 54.9 from 53.1.
The manufacturing sector unexpectedly fell to 48.7 from 50.3, a move below 50 that takes it into contractionary territory.
The Bank of England is expected to lower rates by at least half a percentage point this year, with the first cut coming in June or August.
Yen awaits BOJ meeting
In Asia, USD/JPY edged lower to 154.81, just below the new 34-year highs above the 155 level, prompting increasing speculation over just when the Japanese government will intervene in currency markets.
The Bank of Japan holds its latest policy-setting meeting on Friday, where the central bank is widely expected to keep rates on hold after raising them for the first time in 17 years in March.
USD/CNY edged 0.1% higher to 7.2469, remaining close to five-month highs, above the psychologically important 7.2 level.
