The US dollar traded flat on Tuesday in the European trading session, while the yen surged on suspicions of government intervention last week. Here’s what’s important in the currency market.

Dollar Takes a Breather

The dollar was able to stabilize on Tuesday, with traders showing signs of respite as they digest today’s volatile political situation with little economic data until the release of U.S. personal consumption expenditures inflation figures for June, due on Friday.

US Vice President Kamala Harris appears to be the Democratic Party’s front-runner for the presidential nomination, although she has yet to be officially nominated.

Despite this, Republican Party candidate Donald Trump was polling ahead of both Biden and Harris as of last week, according to data from both CBS and HarrisX.

Expectations of a possible Donald Trump presidency have contributed to some strength for the dollar, as market analysts said he was likely to expand trade protection policies.

The most important economic data this week will come on Wednesday, with June’s personal consumption expenditures index a stern test of market expectations that the Federal Reserve is almost certain to cut interest rates by September.

Euro Falls in Anticipation of Key Activity Data

In Europe, the EUR/USD lost about 0.2% to 1.0873 ahead of this week’s key activity data.

Although economic growth in the Eurozone remains sluggish, strength in the dominant services sector, supported by tourism, has kept price pressures uncomfortably high.

This has been a challenge for the ECB, so Wednesday’s PMI data will be closely watched, after the central bank held interest rates at 3.75% on Thursday and gave no further forward guidance, citing data dependence.

Markets are pricing in almost two rate cuts from the ECB for the remainder of the year.

GBP/USD was down about 0.1% at 1.2919, down from the 1.30 level it reached the previous week for the first time in a year.

The pound has benefited from the political stability generated by Labour’s dominant election victory earlier this month.

However, underpinning this latest upside move is the belief that UK interest rates may be slower to fall than in other countries.

Many major central banks have started to cut rates, and the Bank of England, along with the Federal Reserve, are the only ones yet to do so.

Data earlier in the month indicated that UK inflation remains high, possibly pushing back the start date of the BoE’s August rate-cutting cycle, most likely to the end of the year.

Yen Strengthens Ahead of BoJ Meeting

In Asian markets, the USD/JPY retreated 0.7% to 155.94, near Thursday’s five-week low of 155.375. The yen continues to appreciate against the dollar after suspicions of government intervention last week.

A senior Japanese government official called for more clarity on interest rate hikes by the Bank of Japan, the Nikkei reported on Tuesday. The comments come just a week ahead of a Bank of Japan meeting at which some analysts expect the bank to raise interest rates by 10 basis points.

USD/CNY rose to 7.2743 and remained close to levels last seen in November.

The currency was hit by growing uncertainty about the Chinese economy, particularly after the latest data revealed weaker-than-expected growth in the second quarter.