The dollar returns to lows; euro hit by weak PMI data by Investing.com

Investing.com – The U.S. dollar rose on Monday, falling from a one-year low hit last week, while disappointing data on economic activity weighed on the euro.

At 04:15 ET (08:15 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.5 percent higher at 100.925, just above a 12-day low Monday.

Dollar eyes PCE release

The US dollar recovered somewhat from the sell-off following last week’s sharp interest rate cut, with traders now appearing to write off the chance of a US recession.

“So far, investors have bought into the soft landing narrative provided by Chairman Jerome Powell last week,” analysts at ING said in a note. “And instead of the 50 basis point rate cut spooking equity markets, key benchmarks continued to rise.”

That said, Fed futures traders are now pricing in 75 bps in rate cuts by the end of this year and nearly 200 bps in cuts by December 2025, according to CME FedWatch.

The major economic data release this week will come on Friday in the form of the Fed’s preferred inflation gauge, .

Analysts expect a 0.2% month-on-month rise, taking the annual pace to 2.7%, while the main index will slow to just 2.3%.

“A core PCE of 0.1% on Friday could trigger another drop in US interest rates and the dollar,” ING added.

Euro hit by PMI data

In Europe, it traded 0.5 percent lower at 1.1111 after data showed German business activity contracted in September at the fastest pace in seven months, suggesting the world’s largest economy Europe went into recession.

compiled by S&P Global, fell to 47.2 from 48.4 in August, below the forecast of 48.2.

The rate cut for the second time this year earlier this month last week and other signs of economic weakness could raise the chances of another rate cut in October.

“This is not a great environment for the euro nor for EUR/USD to break the major resistance at 1.12. Further EUR/USD consolidation in the 1.11-1.12 range looks likely, with downside risks early this week,” ING said.

fell 0.4% to 1.3264, giving back some of the pair’s recent gains after hitting its highest level since March 2022 last week.

Interest rates held their key interest rate at 5% on Thursday after starting easing with a 25bp cut in August.

“There is a sense that the positioning in sterling is quite extreme,” ING said. “However, the latest CFTC data released last Friday covering activity from last Tuesday (September 17) actually showed quite a reduction in sterling longs from the speculative community.”

Yuan slips slightly after PBOC cut

traded 0.1% higher at 7.0595 and the yuan fell after the People’s Bank of China cut its 14-day repo rate to further ease monetary conditions and support economic growth.

It was down 0.1% at 143.72, with regional trading volumes subdued due to the Japanese market holiday, although the yen remains close to its strongest levels for 2024.

It held interest rates steady last week and said it expects inflation and economic growth to rise steadily.