In the early hours of Tuesday’s European session, the U.S. dollar was advancing, showing signs of recovery after sharp losses overnight, while the euro was losing ground after weak German jobs data.

JOLT data in focus 

The dollar stabilized on Tuesday, recovering from sharp losses at the start of the week, driven by data showing a second straight month of slowing manufacturing activity and an unexpected decline in construction spending.

Signs of economic weakness supported the likelihood that the Fed will cut interest rates by the end of 2024, and fed funds futures now place the odds of a September rate cut near 59%.

Later in the session, other key jobs data will be released, including April’s Job Openings and Labor Turnover Survey (JOLTS) job openings, which are a much-anticipated precursor to Friday’s key monthly U.S. payrolls figures.

Euro loses ground after weak German jobs data

In Europe, the EUR/USD retreated 0.1% to 1.0888, losing ground after the pair rose to 1.0916 earlier in the session for the first time since March.

Germany’s jobless number rose more than expected in May, according to data released Tuesday, up 25,000 on a seasonally adjusted basis, above the 10,000 expected.

“The spring recovery hasn’t really kicked in this year,” said Labor Bureau chief Andrea Nahles. “The improvement will still be a long time coming.”

The European Central Bank has indicated it will cut interest rates at its next meeting on Thursday, although a recent pickup in inflation might make officials hesitant about when to ease.

GBP/USD was down 0.2% at 1.2776 after hitting its highest level since March 14.

The Bank of England will hold a potentially decisive monetary policy meeting later this month, and traders are watching for clues as to when it will begin its rate-cutting cycle.

Japanese yen in demand

In Asian markets, USD/JPY retreated 0.5% to 155.34, and the yen continued to trade higher against the dollar after falling below 156 overnight for the first time since May 21.

The Bank of Japan meets at the end of the month, and traders are waiting for clues about a possible rate hike. 

USD/CNY rose 0.1% to 7.2439, hovering near six-month highs, as sentiment towards China remains weak. 

USD/INR rose 0.5% to 83.494, with the Indian rupee retreating after early projections indicated a narrow victory for Prime Minister Narendra Modi in the upcoming 2024 general election.

While a win would mean a rare third term for Modi, a smaller-than-expected majority indicates greater difficulty in promoting economic reforms.