Most currencies in Europe and Asia were flat on Monday, while the dollar was unchanged in thin trading, awaiting more interest rate signals from the US ahead of key inflation data this week.

Public holidays in the US and the UK limited market trading volumes.

Similarly, most regional currencies experienced losses the previous week, after a series of statements by Federal Reserve officials prompted traders to revisit their estimates of possible interest rate cuts by the Fed later in the year.

The dollar is stable, awaiting PCE inflation

The dollar index, which tracks the currency against a basket of currencies, along with dollar index futures were flat in European markets. The dollar had shown signs of strengthening in recent sessions, supported by expectations of future rate cuts by the Federal Reserve.

Monetary policymakers have raised doubts about the sustainability of the unwinding of pricing pressure, raising bets that the Fed could make a decision to leave rates at more than two-decade highs for a longer period.

This week, traders will focus on data related to the Personal Consumption Expenditure Price Index (PCE), the Fed’s preferred gauge, due on Friday.

Euro hovers around the flat line

Euro zone inflation data will be released this week, with market analysts expecting prices to rise at a slightly faster pace in May compared to last month. The numbers could influence how the European Central Bank will target future interest rate decisions this year.

Motivated by inflation data in Europe, which is close to the target of 2%, markets expect the ECB to possibly cut its deposit rate by about 25 basis points at its next scheduled meeting in June.

Japan’s yen rallies

 The USD/JPY fell slightly in Asia, with traders preparing for possible government intervention to support the currency. According to media reports, the government last intervened during a public holiday on May 1. This intervention caused sharp losses in USD/JPY, which, however recovered this month. 

This week sees the release of inflation data in Tokyo, as well as industrial production and retail sales.

Other Asian currencies remained subdued. The Australian dollar (AUD/USD) advanced slightly, and the Chinese yuan (USD/CNY) rose slightly after a stronger than expected midpoint fixation. According to data released on Monday, Chinese industrial profits rose in April.