The euro fell on Monday, hitting one-month lows due to increased political instability and uncertainty in the region, while the U.S. dollar awaits the Federal Reserve’s meeting later this week.
Euro plummets on political instability
Following the results of the European Parliament elections, which ended on Sunday, the euro fell as Euroskeptic nationalists made the biggest gains.
This prompted France’s President Emmanuel Macron to call an early legislative election at the risk of trying to re-establish his authority after strong gains by his far-right political contender Marine Le Pen.
Against this backdrop, fears of a shift in support for Ukraine continue to unnerve markets.
Dollar loses some of its gains
The U.S. dollar retreated on Monday, losing some of Friday’s strong gains, as traders await the upcoming Federal Reserve meeting and the release of new inflation data.
The US dollar received a boost in the final days of last week, rising to a near one-month high, as data reported stronger than expected growth in May non-farm payrolls, reducing the perceived chances of a Fed rate cut in 2024.
Markets are now pricing in 36 basis points of Fed rate cuts this year, down from nearly 50 basis points prior to the jobs data.
The Fed wraps up its final two-day meeting on Wednesday, and rate changes are expected.
Attention will be focused on comments from Fed Chairman Jerome Powell, any changes regarding economic projections as well as important inflation data in the country.
The GBP/USD pair fell as low as 1.2724, with the pound trading in a very small range ahead of the next Bank of England meeting scheduled for later this month.
Bank of Japan meeting approaching
The USD/JPY rose about 0.1% to 156.90, and the yen remained weak even though gross domestic product data showed that Japan’s economy contracted slightly less than expected in the first quarter. Nonetheless, the economy continues to perform poorly.
The Bank of Japan will meet later this week and is expected to begin tightening monetary policy by reducing its asset purchases. However, the extent of the BOJ’s monetary policy tightening remains uncertain as the economy is still weak.
USD/CNY traded virtually unchanged at 7.2477, hovering near six-month highs, as the Chinese economy continues to grapple with a patchy economic recovery.
